Cisco Earnings Preview: What Wall Street's Saying

NEW YORK (TheStreet) - Cisco (CSCO) is scheduled to report its fiscal third-quarter results after market close on Wednesday with investors keen to see whether the networker's fortunes have improved after a couple of challenging quarters.

The San Jose, Calif.-based company met Wall Street's estimates with its second-quarter results although its stock tanked on underwhelming guidance and ongoing weakness in some key markets. Cisco's first quarter also was weighed down by weakness in emerging markets and the challenge of managing through new product cycles in the service provider space.

Speaking after the second-quarter results, Cisco CEO John Chambers said that although the company's emerging market business improved it was way too early to call a trend. Tech investors will be closely monitoring his comments during the company's earnings conference call to gauge the health of enterprise IT spending.

For the third quarter, Cisco expects revenue between $11.22 billion and $11.47 billion, a decline of 6% to 8% from the prior year's quarter. Analysts surveyed by Thomson Reuters are looking for Cisco to report revenue of $11.36 billion and earnings of 48 cents a share, down from $12.2 billion and 51 cents a share in the prior year's quarter.

Cisco has certainly had a busy few months, recently releasing new versions of its Nexus 9000 switch and a new Nexus 3000 switch designed to handle big data. The company also announced a $1 billion plan to expand its cloud computing services. Keen to tap new revenue streams outside of router and switch hardware, Cisco is touting its Intercloud as a way for businesses to quickly develop applications across an open network of clouds. Critics, however, warned that the networking giant may lack the financial clout to make the cloud impact it's looking for.

Recent numbers from Cisco's networking rival Juniper (JNPR), however, may bode well for the company's results. Juniper beat analysts' revenue estimates in its preliminary first-quarter results last month, lifted by strong year-over-year revenue growth. The Sunnyvale, Calif.-based company also met Wall Street's earnings forecasts and delivered healthy guidance.

Here's what analysts expect from Ciscoon Wednesday:

Cantor Fitzgerald analyst Brian White - Buy, $27.50 price target

"After experiencing a few difficult quarters in a row due to weakness in emerging markets, softness at service providers, muted IT spending and the impact of new product transitions without the associated sales, our model suggests that Cisco's profit cycle bottomed out in 3Q:FY14 (April), and we expect major new platform initiatives to begin contributing more meaningfully to revenue over the next couple of quarters."

MKM Partners Managing Director Michael Genovese - Neutral, $26 price target

"We expect upbeat April numbers driven by the healthy backlog going into the quarter. We also expect upbeat 4QFY14 guidance based on our recent checks suggesting solid conditions in the U.S. Enterprise market stimulated by Cisco's rollout of the Nexus 9000 switch and associated SDN strategy. Our fair value estimate for the stock increases to $26 from $24. Given the likelihood of a small beat and raise, and the fact that the order and revenue comps become much easier in 2015, we are giving CSCO one extra PE turn and we now base FV on 12x our FY15 EPS forecast."

ISI Technology Research analyst Brian Marshall - Neutral

"We expect a roughly in-line quarter for CSCO with the top and bottom lines both within guidance ranges (e.g., guidance of sales down 6-8% y/y and EPS of $0.47-0.49). Given widespread negative sentiment on the stock in the investment community, we see minimal downside risk from an in-line report and in-line guidance. We have many concerns that keep us on the sideline including margin pressure from alternative open networking solutions and lack of significant growth drivers outside the core routing/switching franchises. However, despite these issues, we continue to warm up to the CSCO story. While not as "open" as others, we believe CSCO is innovating on the product front and has a solid opportunity to retain the majority of its mainstream general enterprise installed base with more software-oriented, programmable products/technologies (e.g., Nexus 9k, APIC, etc.)."

UBS analyst Amitabh Passi - Buy, $26.50 price target

"For the earnings report, we believe in-line results with in-line guidance will be good enough as long as Cisco shows improvement in 3 key metrics: a) bookings, especially for Cisco's new platforms - NCS and ACI (incl. 9k), and in other key areas including security, mobility and datacentre; b) backlog; c) product gross margin, with UBSe GM of 59.1%, modestly above the 58.8% reported in F2Q. We believe Cisco will need to show progress on GM to comfort the bulls and assuage the bears. As evident in our forecasts, our growth expectations remain muted for the nearterm with Y/Y revenue declines of 7% and 6% for F3Q and 4Q, respectively, as we still foresee Cisco in a state of transition while the macro environment remains volatile."


>>Read More: Why Cisco Investors Should Be Patient

>>Read More: How to Trade Earnings for Cisco, Kohl's and Walmart, Plus 5 Others

-- Written by James Rogers in New York.

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