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Can Cisco Systems (CSCO) Spring a Surprise in Q4 Earnings?

Cisco Systems Inc. CSCO is set to release fourth-quarter fiscal 2017 earnings on Aug 16. We note that the company has beaten the Zacks Consensus Estimate in all of the trailing four quarters with an average positive surprise of 3.80%.

In the last quarter, Cisco delivered a positive earnings surprise of 1.89%. Excluding stock-based compensation, earnings increased 5.3% on a year-over-year basis to 60 cents, which was slightly better than management’s guided range of 57–59 cents.

However, revenues declined 0.5% year over year to $11.94 billion, which beat the Zacks Consensus Estimate of $11.89 billion. Management had anticipated revenues to decline in the range of 2% or remain flat on a year-over-year basis.

For fourth-quarter fiscal 2017, revenues are expected to decline in the range of 6–4% on a year-over-year basis. The Zacks Consensus Estimate for revenues is currently pegged at $12.06 billion, which reflects a year-over-year decline of 4.54%. Non-GAAP earnings are anticipated to be in the range 60–62 cents per share.

Cisco Systems, Inc. Price and EPS Surprise


Cisco Systems, Inc. Price and EPS Surprise | Cisco Systems, Inc. Quote

Cisco’s stock has gained 4.2% year to date, slightly outperforming the 3.6% rally of the industry it belongs to.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Intense competition from several smaller players like Arista Networks ANET, slowing order growth from service providers and challenges in the emerging markets may continue to drag Cisco’s to-be-reported quarterly results. Notably, the company has been losing market share and witnessing declining revenues trend due to the aforementioned factors.

Nonetheless, the acquisition of AppDynamics in March has helped the company to gain traction in the application and business monitoring space. Moreover, the ongoing evolution to a software-centric company is positive in our view.

Further, partnerships with the likes of Pure Storage, and IBM will also positively impact the to-be-reported quarterly results.

Earnings Whispers?

Our proven model does not conclusively show that Cisco will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Cisco’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 55 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cisco carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Note that, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Broadcom AVGO has an Earnings ESP of +2.57% and carries a Zacks Rank #2. You can seethe complete list of today’s Zacks #1 Rank stocks here.

CACI International CACI, has an Earnings ESP of +1.83% and holds a Zacks Rank #2.

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