Cisco Could Hit $32 After Earnings: MKM

Cisco Systems, Inc. CSCO is scheduled to announce its fourth-quarter results on Wednesday after the market closes. Ahead of the release, MKM Partners’ Managing Director, Michael Genovese, and Research Associate, Michael Brockway, looked into the company and reiterate a Neutral rating and $32.00 price target on the stock.

Despite the Neutral rating, the experts expect strong results this quarter and think the stock could surge about 14 percent after the call. They explain the rating seeks to reflect “long-term trends like the concentration of Data Center equipment purchasing toward a relatively few Hyperscale Data Center builders.” This tendency will act as a headwind for Cisco, since it “does not do particularly well with this powerful group of buyers.” The note also expresses the firm’s concerns regarding the long-term implications of SDN/NFV for the company’s already struggling Service Provider Router business.

A Look Into Q4

According to the report, the experts believe Cisco should have no problems meeting or even slightly beating MKM’s revenue estimates of $12.61 billion  (below consensus of $12.66 billion). The analysts think product order growth probably accelerated to 3-5 percent year-over-year, on the back of “the Application Centric Infrastructure (ACI) product cycle and consistent comps (product orders were +1% y/y in both 3QFY14 and 4QFY15.)”

MKM is modeling in-line to slightly better 62+ percent gross margins and $0.01-$0.02 of EPS upside, relative to its estimate of $0.56. For the full year, EPS are projected at $2.17 and sales at $48.93 billion.

Shares of Cisco were down more than 2 percent on Tuesday.