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Cisco (CSCO) to Report Q2 Earnings: What's in the Offing?

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Cisco Systems, Inc. (CSCO - Free Report) is scheduled to release second-quarter fiscal 2020 results on Feb 12.

For second-quarter fiscal 2020, Cisco anticipates revenues to decline 3-5% on a year-over-year basis. The Zacks Consensus Estimate for fiscal second-quarter revenues is pegged at $11.99 billion, indicating a decline of 3.7% over the year-ago reported figure.

Non-GAAP earnings are anticipated between 75 cents and 77 cents per share. The Zacks Consensus Estimate for earnings has been steady for the past 30 days at 76 cents, indicating an improvement of 4.1% from the prior-year quarter.

Notably, the company beat estimates in the trailing four quarters by 1.90%, on average.

Guidance in Detail

Notably, in the fiscal first-quarter earnings conference, management had blamed sluggish macro-economic conditions (due to the U.S.-China trade, Brexit and others) and a slowing China economy for the weakness in the service provider, enterprise and commercial end markets. Muted growth in these markets is likely to have affected the fiscal second-quarter performance as well.

Cisco Systems, Inc. Price, Consensus and EPS Surprise


Cisco Systems, Inc. Price, Consensus and EPS Surprise

Cisco Systems, Inc. price-consensus-eps-surprise-chart | Cisco Systems, Inc. Quote

Moreover, management had noted that pricing pressure in the server market is expected to accelerate in the fiscal second quarter.

The company expects the gross margin to continue benefiting from lower DRAM prices (in the server market). Further, lower operating expenses are expected to boost operating margin.

Factors to Consider

Cisco’s fiscal second-quarter results are likely to reflect robust adoption of its Unified Communications (UC), Conferencing and TelePresence, portfolio of AppDynamics and Jasper offerings.

Solid demand for the company’s security solutions, including web security, unified threat, and network security and advanced threat offerings, on increase in enterprise spending on cybersecurity, is likely to have benefited fiscal second-quarter performance.

Moreover, growing clout of the company’s latest subscription-based Catalyst 9000 switching platform, Cat9K and Nexus 9K is likely to have accelerated Switching revenue growth  in the fiscal second quarter. Markedly, during the quarter under review, the company announced plans to acquire Exablaze to enhance Nexus switching portfolio with advanced FPGA capabilities.

Additionally, strength in company’s Meraki solutions is likely to have driven growth in wireless domain. Accelerated deployment of 5G and growing adoption of Wi-Fi 6 compliant devices is expected to have bolstered demand for Meraki solutions in the quarter under review.

Further, in data-center vertical, momentum in the HyperFlex data-center solution is likely to have continued in the quarter under review, in turn driving the fiscal second-quarter performance.

The company is integrating AI and ML capabilities into enterprise collaboration solutions aimed at increasing productivity of users, and improve engagement. In fact, with Voicea acquisition, Cisco is well poised to enhance Webex portfolio with AI-based voice-recognition and transcription capabilities. This in turn is expected to have bolstered adoption of Webex Meetings, Webex Devices and Webex Teams, among others, in the fiscal second quarter. This in turn is expected to have driven the fiscal second-quarter performance.

However, increasing investments on portfolio expansion, product enhancements and acquisitions, amid stiff competition from Arista and Juniper in networking infrastructure market is likely to have limited margin expansion in the fiscal second quarter.

What Our Model Says

Our proven model does not conclusively predict an earnings beat for Cisco this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Cisco has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a few stocks that you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Alteryx, Inc. (AYX - Free Report) has an Earnings ESP of +6.49% and a Zacks Rank #1. You can see  the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Inc. (AMAT - Free Report) has an Earnings ESP of +2.89% and a Zacks Rank of 1.

CEVA, Inc. (CEVA - Free Report) has an Earnings ESP of +27.06% and a Zacks Rank of 1.

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