Cisco 'Story Is Changing,' Analyst Says Buy Ahead Of Earnings

Cisco Systems, Inc. CSCO appears poised for a “modest beat and raise” on the top line for the April quarter results and July quarter guidance, with gross margins in line with current expectations, Deutsche Bank’s Vijay Bhagavath said in a report.

Bhagavath expects Cisco to report April quarter revenues and EPS of $11.89 billion and $0.57, respectively, and guide to July quarter revenues and EPS at $12.65 billion and $0.62, versus the current consensus estimates of $12.52 billion and $0.62. The analyst maintains a Buy rating on Cisco, with a price a target of $42.

Story Changes

Commenting on the larger picture, Bhagavath noted that Cisco was among the few tech mega caps where the “story is changing.” He explained that the company was transforming from a transactional box view to around 40 percent of its product revenues being contributed by mid-teens growth in the higher-margin software subscriptions revenues:

• Datacenter Switching: This accounts for ~12 percent of revenues. “Our IT disty research notes above seasonal order strength for CSCO’s 10/40/100G Nexus 9k/3k switches and APIC Automation Software at US Fortune 500 Datacenters,” Bhagavath wrote.
• Enterprise Networking: This accounts for ~40 percent of revenues. The IT distys indicated significant order trends for Cisco’s Software portfolios in “Next Gen Security, Collaboration, and Meraki Cloud Managed Services,” the analyst mentioned.
• Service Provider: This accounts for ~25 percent of revenues. This business is likely to witness improving order trends.

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