Cisco Systems, Inc. (CSCO) Will Continue to Attract Value Investors: Drexel Hamilton


As Cisco Systems, Inc. (NASDAQ:CSCO) readies to release its fiscal fourth quarter earnings later today, analyst Brian White of Drexel Hamilton dives in to find out what is driving the networking solutions tycoon. After the company laid out its plans during Cisco Live! “The Network Intuitive” in late June, the analyst believes Cisco management has paved a path towards higher recurring revenue going forward.

White believes the company will meet his revenue estimate for the fiscal fourth quarter of $12.01 billion, which would indicate a 5% year-over-year decline, compared to the Street’s forecast of $12.06 billion. Additionally, the analyst is looking for an EPS beat, anticipating CSCO will pull ahead of his expectations for $0.60 against the Street’s $0.61. White predicts this will be the tycoon’s “weakest July quarter since 2002,” and as such, his revenue forecast mirrors this, factoring in a 0.6% quarter-over-quarter rise in sales. The analyst underscores CSCO management’s fiscal fourth quarter guide expecting sales to take a 4% to 6% year-over-year hit, or decrease to roughly $12.13 billion to $11.88 billion, with pro forma EPS estimated to range between $0.60 and $0.62.

In regard to the previous earnings season, the analyst notes that “trends across the supply chain as it relates to networking/telecom programs experienced weaker than seasonal trends in 2Q:17 relative to a year ago and the 3Q:17 outlooks were soft. In our networking coverage (i.e., F5 and Juniper), the 2Q:17 results were weaker than seasonality, while the 3Q:17 outlooks were weaker relative to last year.”

Despite expecting “muted trends in the near term,” White does “believe Cisco’s rich dividend yield (3.6%), attractive valuation (~11x CY:18, ex-cash), 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.” Moreover, the analyst points to “core technologies such as the DNA Center, new platforms with the Catalyst 9000 switching portfolio and Encrypted Traffic Analytics” as disused at the recent Cisco Live event to open doors to innovate the company on a number of levels.

The analyst maintains a Buy rating for CSCO stock with a price target of $39.00 representing a 21% rise over current trading levels. (To watch White’s track record, click here)

TipRanks analytics demonstrate CSCO as a Buy. Out of 24 analysts polled by TipRanks in the last 3 months, 16, while 8 sidelined on Cisco stock. With an upside potential of near 11%, the stock’s consensus target price stands at $35.56.

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