Channel Checks Suggest In-Line Quarter For Cisco Systems

Oppenheimer expects fourth-quarter EPS of $0.59 on revenue of $12.5 billion versus the Street estimate of $0.60/$12.57 billion.

"With mixed macro trends and Brexit uncertainty, we're still somewhat cautious, but believe management was appropriately conservative in guidance to achieve in-line results," analyst Ittai Kidron wrote in a note.

Kidron, who reiterated his Outperform rating on the stock, noted that Cisco would carry forward its positive momentum from the third quarter, despite macro challenges.

Related Link: Terms Of The Trade: Dogs Of The Dow Investing Strategy

"Switching is doing better than feared and the company continues to make progress on its business model transition, which we think investors are beginning to appreciate (as evidenced by stock movement)," Kidron continued.

The analyst's checks show solid demand for Cisco's switching business as well as UCS. Further, the switching business would benefit in FY17 as campus upgrade cycle kicks in. In addition, Kidron's checks on security and WLAN were "relatively balanced, skewed modestly toward the positive."

Meanwhile, the analyst's first-quarter checks (October quarter) suggest Cisco's guidance is likely to come in line with consensus targets, and he said his above-consensus estimates are somewhat optimistic. Kidron sees first-quarter EPS of $0.62 on revenue of $12.6 billion, while the Street's EPS/revenue forecast came in at $0.60/$12.5 billion.

"Checks surprised here too with UK indicated slightly better than the rest of Europe. We expect Cisco to continue to take a conservative approach given regional challenges," Kidron elaborated.

The analyst raised his price target on the stock to $34 from $30 as it is long-term positive on Cisco given its shift to subscription-based solutions.

At time of writing, shares of Cisco were up 0.36 percent to $30.86. The revised target of $34 implies a potential upside of about 11 percent from the current levels.

v