Cisco Third-Quarter Earnings Are Chambers' Last -- What Wall Street's Saying

NEW YORK (TheStreet) -- Cisco's (CSCO) fiscal third-quarter earnings report will be the company's last with John Chambers as CEO, and investors will be looking to hear whether the company's problems in China and competition from Facebook (FB) and others are having a major impact on revenue and net income.

Last week, the company said that Chuck Robbins would replace Chambers as CEO, effective July 26, with Chambers set to become executive chairman.

Chambers' departure had been expected for some time, partially because to the company's problems in China as well as a changing IT environment where Cisco has struggled to grow as fast as some of its rivals.

Cisco has said it expects an uneven recovery especially in the U.S. as some of its customers, including large service providers, have indicated they will spend less this year on their own networks.

"There are many large U.S. service providers stating that their particular capex will be down in 2015," Cisco President Rob Lloyd said in a November 2014 interview.

Analysts surveyed by Thomson Reuters expect the company to earn an adjusted 53 cents a share on $12.06 billion in revenue during the company's fiscal third quarter.

Investors will be looking to see whether Facebook's entry into networking, using software-defined networking, or SDN, which uses out-of-the-box computer parts, will reduce Cisco's margins.

The Menlo Park, Calif.-based social network is working hard to make SDN the industry standard (through its Wedge product), which lets companies take features that are built into networking equipment and put them into software, alleviating the need for continuously buying expensive networking hardware.

Cisco has its own SDN, known as the Nexus 9000, as do other companies in the networking space, but if Facebook is successful in its endeavors, it may force other tech companies to take a closer look at building their own SDNs.

Ahead of the quarter, analysts were largely positive on the results. Here's what a few of them had to say.

Cantor Fitzgerald analyst Brian White (Buy, $33 Price Target)

"Although we anticipate weak U.S. carrier spending trends and softness in emerging markets to hold back Cisco's true potential in 3Q:FY15, we believe strength in the data center, healthy trends in the enterprise/commercial market and strong execution should be able to offset these soft spots. At the same time, Cisco's shares are trading at just 9.9x our CY:16 EPS estimate with a 2.9% dividend, offering investors an attractive value proposition, in our view."

RBC Capital Markets analyst Mark Sue (Outperform, $33 PT)

"Increasing the cash-flow, growing the dividend and repatriating the cash for a massive ASR can get Cisco's stock to +$45. A new CEO/CFO combination has the opportunity to think differently, while pushing the current agenda for more software contributions and operational improvements. Price target now $33."

Wells Fargo analyst Jess Lubert (Outperform, $33-$36 PT)

"We expect Cisco to at least meet the Street's FQ3 estimates, as healthy enterprise demand in North America and Europe, along with the successful ramp of several new products, likely offset weak carrier spending and challenges in the emerging markets. We also expect margins to at least meet our forecast due to stable pricing and cost controls. While Cisco is likely to note healthy momentum entering the July quarter, we expect the company to conservatively guide FQ4 in line with consensus due to currency headwinds in overseas markets and continued weakness in the carrier vertical. Despite these concerns, we see value in Cisco shares as we think the ramp of new products and greater software content should enable the company to deliver the growth and
profitability needed for the stock to work, with valuation and yield also attractive."

Wedbush Securities analyst Scott Thompson (Outperform, $31.50 PT)

"We expect CSCO's ability to generate y/y revenue growth from an increasingly larger number of customers upgrading to new platforms will continue to help the company deliver in-line to slightly better than expected results in F3Q15. We believe investors will be focused on Cisco's ability to stabilize and expand GMs in F3Q15 and through CY15, the impending CEO transition, and the potential for updated LT financial metrics at Cisco's analyst day on 6/8-9."

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