Cisco Set To Report Q2 Results: How To Manage Your Expectations

Analyst Matthew Robison expects EPS/revenue of $0.56/$11.590 billion versus FactSet consensus of $0.56/$11.540 billion. For the third quarter, Robison forecast EPS of $0.59 on revenue of $11.850 billion and consensus is $0.58/$11.853 billion.

Possible Negatives

Cisco faces tough comparisons across its segments including Enterprise. Fourth quarter 2016 enterprise order growth of 3 percent followed four periods of enterprise order decline and it accelerated to 5 percent in the first quarter (October).

Similarly, first quarter service provider orders were down 12 percent versus 6 percent growth in the same quarter last year. The second quarter 2016 has a comparison almost as challenging with 5 percent growth a year ago.

Robison views the commercial order growth as most vulnerable, as management focus shifts to software and services and campus connectivity becomes the realm of these content with lower gross margins than Cisco.

Positives

That said, the analyst expects a strong showing from the security segment and expects second quarter growth of at least 12.6 percent with lapping of recurring revenue and more enterprises buying-in to the Cisco security story.

“We understand the new Umbrella offering comprised of technology from OpenDNS, CloudLock and advanced malware protection from the Sourcefire acquisition has generated significant incremental interest in Cisco security products,” Robison wrote in a note.

Meanwhile, Robison expects moderate dilution to near-term income statements from the $3.7 billion AppDynamics acquisition, which is scheduled to close in the third quarter.

Shares of Cisco closed Monday’s trading at $31.97. Robison has a price target of $27.