Why Cisco Looks Attractive Ahead Of Q4 Earnings

Earnings season is coming to an end with just a handful of notable companies yet to report, including Cisco Systems, Inc. (NASDAQ: CSCO). The company will report its fiscal fourth-quarter report after Wednesday's market close, and analysts at Cowen remain bullish heading into the print.

Cowen's Paul Silverstein maintains an Outperform rating and $39 price target on Cisco's stock as the company's margin structure remains "resilient." The analyst also expects to see in the report a positive impact from the company's ongoing shift in revenue mix towards services and software. In fact, the company's 32.3-percent operating margin in its fiscal third-quarter represents its second highest reading in more than 15 years.

Perhaps more importantly, Cisco is sitting on more than $7 per share in cash and will soon be in a position to "monetize" it through share repurchases or an accretive acquisition, or both, the analyst continued. However, part of this assumption is based on expectations for changes to the U.S. repatriation tax law but investors are wrong to assign little to no value to this outcome.

Meanwhile, Cisco's stock already boasts a 3.7-percent dividend yield and a more than 10-percent free cash flow yield (ex-net cash), which adds to the bullish case.

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