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What Investors Can Expect from Cisco's (CSCO) Q3 2019 Earnings Results

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Cisco (CSCO - Free Report) stock jumped 1.40% during regular trading hours Tuesday heading into the release of the company’s quarterly financial results, which are due out after the closing bell on Wednesday. Shares of the historic tech giant are up 20% in 2019, but have slipped over the last month as the broader market comes back down to earth.

With that said, let’s see what investors can expect from Cisco’s third-quarter fiscal 2019 earnings and revenue results.

Quick Overview

Cisco last quarter impressed Wall Street with top and bottom-line beats despite President Trump and his administration’s 10% tariffs on many Chinese produced goods. Cisco makes some of its routers and switches in the world’s second-largest economy and sells them in the U.S. Cisco executives were, however, able to combat these tariffs through higher prices.

The tech firm’s ability to raise prices again to try to offset the increased 25% tariffs might prove more difficult. Yet, Bank of America analyst Tal Llanl seemed confident that Cisco would be able to navigate any potential setbacks. “Cisco has been actively shifting contract manufacturing and pricing to offset the previous 10% tariffs on Chinese-produced goods, and we expect such workarounds to also help soften the recent tariff increase to 25%," Llanl wrote in a note to investors.

Aside from future trade war speculation, which won’t impact Wednesday’s results, Cisco has expanded far beyond its core hardware business. The San Jose, California-headquartered firm now sells everything from security offerings to solutions for cloud computing, data centers, the Internet of Things, and more. “Our teams are executing incredibly well, aggressively transitioning to a software model and accelerating our pace of innovation,” CEO Chuck Robbins said in prepared remarks last quarter.

CSCO stock closed regular trading Tuesday at $52.02 per share. This marked a roughly 10% downturn from its 52-week intraday trading high of $57.53 per share, which could give Cisco shares room to run following its earnings release if the company is able to impress investors and Wall Street.



Outlook & Earnings Trends

Our current Zacks Consensus Estimate calls for Cisco’s quarterly revenue to jump roughly 3.5% from the year-ago quarter to reach $12.90 billion. More specifically, the company’s product unit sales are projected to jump 3.8% to reach $9.67 billion, based on our NFM estimates. Investors should note that this would come in below last quarter’s 6% product revenue growth.

Meanwhile, Cisco’s services unit is projected to climb approximately 2.4% to hit $3.24 billion, which would top last quarter’s flat growth. Furthermore, Cisco’s application unit sales are projected to climb 19% to touch $1.56 billion. Last quarter, its app business jumped 24%. Lastly, its security division is expected to expand by 12% to hit $653 million. Once again, this would mark a slowdown compared to Q2 2019’s 18% security unit growth.

Moving on, Cisco’s adjusted quarterly earnings are projected to climb 16.7% from the prior-year quarter to come in at $0.77 per share. This would come in higher than last quarter’s roughly 16% bottom-line expansion.

With that said, investors should note that the company has seen zero earnings estimate revisions for the current quarter over the last 60 days. This means analysts haven’t changed their minds for better or worse. Cisco also boasts an extremely long history of quarterly earnings beats, which includes a 2.1% average bottom-line surprise in the trailing four quarters.

Bottom Line

Cisco’s longer-term earnings estimate revision activity helps it earn a Zacks Rank #2 (Buy) heading into its Q3 fiscal 2019 earnings release, which is due out after the closing bell Wednesday, May 15. Yet, buying stocks ahead of earnings is not for the faint of heart, as projections are not guarantees and lower-than-expected guidance can send stock prices down following earnings.

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