All Eyes on Cisco Systems, Inc. (CSCO) FQ1:18 Earnings

Drexel Hamilton's Brian White believes CSCO's valuation matters more than weak network backdrop.


As the tech-verse awaits first fiscal quarter results from Cisco Systems, Inc. (NASDAQ:CSCO) once the bell tolls tonight, one bull continues to charge on the networking giant’s behalf even amid a tough networking market.

Out with a bullish preview, Drexel Hamilton analyst Brian White maintains a Buy rating on CSCO stock with a price target of $39, which represents a 14% increase from where the stock is currently trading. (To watch White’s track record, click here)

White notes, “Despite a soft networking market, we believe Cisco’s rich dividend yield (3.4%), attractive valuation […] expanding recurring revenue contribution, consistent margin execution and prime position as a beneficiary of potential revisions in repatriation policies will continue to attract value investors.”

For the first fiscal quarter of 2018, the analyst angles for CSCO to come close to $12.03 billion, which would suggest a 3% year-over-year dip, compared to the Street’s forecast of $12.11 billion. Additionally, the analyst anticipates Cisco can at minimum achieve his EPS expectations of $0.60, which aligns with the Street’s estimate. Keep in mind, White emphasizes, the CSCO team has guided sales to sink by 3% to 1% year-over-year, forecasting roughly $11.98 billion to $12.23 billion, with a pro forma EPS outlook set between $0.59 and $0.61.

Meanwhile, the analyst offers some context behind challenges circling the supply chain: “This earnings season, trends across the supply chain as it relates to networking/telecom programs experienced weaker than seasonal performance in 3Q:17 relative to a year ago and the 4Q:17 outlooks were soft. In our networking coverage (i.e., F5 and Juniper), the 3Q:17 results were weaker than seasonality, while the 4Q:17 outlooks were also soft.”

All the same, despite this “muted network backdrop,” the company continues to build out its software potential. With regard to the networking giant’s software portfolio expansion throughout the year, the analyst commends Cisco’s forthcoming takeover of BroadSoft anticipated to close in the first quarter of calendar 2018 for around $1.9 billion. “We believe BroadSoft can be a more powerful force under the Cisco umbrella, leveraging Cisco’s global reach, financial resources, portfolio, brand and scale,” writes the analyst.

Glancing ahead to the second fiscal quarter, White hovers below the Street’s expectations for revenue of $11.68 billion with an estimate of $11.56 billion, but mirrors the Street’s EPS projection of $0.58.

Wall Street goes to the bulls when it comes to this tech player, as TipRanks analytics exhibit CSCO as a Buy. Out of 19 analysts polled by TipRanks in the last 3 months, 14 are bullish on Cisco stock while 5 remain sidelined. With a return potential of 6%, the stock’s consensus target price stands at $36.33.