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Is a Beat in the Cards for Cisco (CSCO) in Q3 Earnings?

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Cisco Systems, Inc. (CSCO - Free Report) is set to report third-quarter fiscal 2020 results on May 13.

For third-quarter fiscal 2020, Cisco anticipates revenues to decrease 1.5-3.5% on a year-over-year basis. The Zacks Consensus Estimate for revenues is pegged at $11.88 billion, indicating a decline of 8.4% over the year-ago reported figure.

Non-GAAP earnings are anticipated between 79 cents and 81 cents per share. The Zacks Consensus Estimate for earnings is pegged at 72 cents per share, stable in the past seven days, suggesting a decline of 7.7% from the prior-year quarter.

Notably, the company has a trailing four-quarter positive earnings surprise of by 1.89%, on average.

What the Zacks Model Unveils

Our proven model predicts 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.
 

Cisco Systems Inc Price and EPS Surprise

 

Cisco Systems Inc Price and EPS Surprise

Cisco Systems Inc price-eps-surprise | Cisco Systems Inc Quote

Cisco has an Earnings ESP of +6.29% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Factors at Play

Webex Adoption & Solid Demand for Security Solutions: Key Catalysts

Cisco’s fiscal third-quarter results are likely to reflect robust adoption of its enterprise collaboration solutions, triggered by coronavirus crisis led work-from-home wave and demand for telehealth services. Solid demand for Webex Meetings, Webex Devices and Webex Teams might have driven the fiscal third-quarter performance.

Per a Reuters report on Apr 3, Cisco Webex video conferencing app recorded 324 million users in March — more than double user growth in the United States — with people being asked to work from home as a result of the coronavirus pandemic. (Read More: Cisco Webex Sees User Growth Amid Coronavirus Crisis)

Notably, the company has been strengthening its Webex portfolio by integrating AI and ML capabilities aimed at increasing productivity of users. This is expected to have bolstered engagement and driven adoption, consequently may get reflected in the to-be-reported quarter’s results.

Further, robust adoption of its Unified Communications (UC), Conferencing and TelePresence, portfolio of AppDynamics and Jasper offerings is likely to have benefited Cisco’s fiscal third-quarter performance.

Additionally, solid demand for the company’s security solutions, including web security, unified threat, and network security and advanced threat offerings, driven by spending on cybersecurity as employees work remotely amid the lockdowns might have aided fiscal third-quarter performance.

Other Noteworthy Aspects

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 to be reported.

Further, in data-center vertical, momentum in the HyperFlex data-center solution is likely to have continued in the fiscal third quarter, driven by coronavirus induced demand for cloud computing solutions. This, in turn, is likely to get reflected in the to-be-reported quarter’s results.

However, increasing investments on portfolio expansion, product enhancements and acquisitions amid stiff competition from Arista (ANET - Free Report) and Juniper in networking infrastructure market are likely to have limited fiscal third-quarter margin expansion.

Moreover, decline in IT spending due to the coronavirus pandemic-induced broader macroeconomic weakness is likely to have weighed on the fiscal third-quarter revenues. (Read More: Coronavirus-Led Slowdown to Hurt Corporate IT Spending – IDC)

Key Developments in Q3

During the quarter, Cisco announced its plans to acquire New York-based wireless tech company — Fluidmesh Networks. The acquisition of Fluidmesh is anticipated to strengthen Cisco’s Industrial IoT portfolio and enable it to address growing demand for IoT based solutions in the market. (Read More: Cisco to Buy Fluidmesh Networks to Boost IoT Portfolio)

The company also announced a new Business Resiliency Program, which includes $2.5 billion in financing, that will be offered via Cisco Capital, to aid businesses alleviate coronavirus crisis-induced financial challenges.

Other Stocks that Warrant a Look

Here are a couple of other companies, which also have the right combination of elements to post an earnings beat this quarter:

BJs Wholesale Club Holdings Inc (BJ - Free Report) has an Earnings ESP of +6.42% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adaptive Biotechnologies Corporation (ADPT - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank #2.

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