Cisco Systems (CSCO) is set to report first quarter fiscal 2018 earnings results after the closing bell Wednesday.
In the three months that ended October, analysts expects Cisco to earn 60 cents per share on revenue of $12.11 billion. This compares to the year-ago quarter when it earned 61 cents per share on revenue of $12.35 billion. For the full year, ending July 2018, earnings are projected to 1.67% year over year to $2.43 per share, while full year revenue of $48.16 billion would rise 0.3% year over year.
With its shares gaining more than 12% since mid-August and trading at 52-week highs, investors are anxious to see whether the world’s largest maker of networking equipment can sustain this momentum. Execution has never been a problem for Cisco, which has met or beaten the Street’s top- and bottom-line estimates in fifteen straight quarters. The issue, however, has been with what some believe to the overly conservative guidance, which has limited the rising potential of the stock.
The company is still in a midst of a transformation. Cisco no longer wants to rely solely on its core routing and switching business and has made moves toward a more software-centric, subscription-based model. Its $1.71 billion deal for BroadSoft, which specializes in cloud-based software used by major cable and telecom networks, was the most recent example.
But here’s the thing: Despite numerous deals of this magnitude, including AppDynamics for $3.7 billion, Cisco’s revenue — which have fallen for seven straight quarters — have yet to show investors the return that have been promised by the management. All of which have caused investors to be gun-shy about the company’s growth prospects.
Will this quarter be the one that reverses the trend? Wall Street expects revenue from Cisco’s switching business — its largest segment — to decline almost 5% year over year to $3.54 billion. For that matter, both hardware segments (including routing) were down 9% in the fourth quarter and ended the year lower in the mid-single digits.
As such, on Wednesday investors will want to see whether Cisco will finally guide for the next quarter and fiscal year (ending 2018) in a way that inspires confidence it can grow the software side of the business to offset the expected decline in hardware? Elsewhere, analysts will want to see the extent to which Cisco can deliver better results in areas such as security, the cloud, analytics and data centers. The latter has been a part of the big push for Cisco.
On Monday Cisco announced that it will be working with Alibaba’s (BABA) cloud computing division. The two tech giants are collaborating to help Alibaba to develop its next-generation data centers — an area of greater focus in China.
All told, investors want to see some sign that Cisco's top line can grow again. That said, investors with tons of patience and are willing to wait 12 to 18 months can do well here. Not only is Cisco a strong tech dividend payer (3.41% yield vs. 2.00% for the S&P 500), it also generates massive cash flow, meaning it has plenty of time to get its business in order.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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