Cisco Systems Inc. will expect to benefit from technical expenditures of large companies despite the COVID-19 pandemic, but the struggle of smaller companies could take its toll.
Cisco CSCO,
is scheduled to report fourth-quarter fiscal revenue on Wednesday afternoon, always a crucial barometer for IT spending, which turned out to be a gain for tech companies during the COVID-19 pandemic. However, that advantage has been selective, as work from home and shelter-on-site trends have favored companies that provide the infrastructure that makes it possible: namely, cloud data centers, online conferencing tools, and cybersecurity.
Cisco covers all of those businesses, but it remains to be seen how well those segments will balance out with the enterprise enterprise, network business, which can take a back seat as companies try to move to the cloud and out of their own private hubs. This is especially true for small to medium-sized businesses, or SMBs, which account for nearly a third of Cisco’s sales.
Raymond James analyst Simon Leopold said sales of large companies, which make up about 30% of the company’s business, began to improve in June. But SMB channel controls show weakness, he said, which could prove particularly damaging to Cisco’s network sales at Cisco, which account for 18% of revenue.
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“We remain concerned that COVID-19 related headwinds pose a risk to Campus,” as network sales on location, Leopold wrote in a note. Data center switching controls, which accounted for about 12% of revenue, were “conflicting”, while wireless sales, about 6% of sales, were “probably depressed” due to a decline in demand from retail and retail customers.
Leopold, who has an outperforming rating on Cisco and a price tag of $ 49, said he thinks the company will meet if consensus estimates are defeated, but otherwise he lacks conviction.
The demand from service providers, about 20% of sales, accounts for “probably a short-term upside”, while collaborative sales, which include WebEx video conferencing, are positive, although they only account for about 9% in revenue. Similarly, safety is a bright spot, but accounts for only about 6% of sales, Leopold said.
What to expect
Earnings: On average, Cisco is expected to post a adjusted earnings of 74 cents per share, down from 83 cents a share in the period from last year, according to a FactSet survey of the estimates of 25 analysts. Cisco provides 72 cents to 74 cents per share. Estimize, a software platform that uses crowd-sourcing from hedge fund executives, brokers, buying analysts and others, claims earnings of 77 cents per share.
Income: Wall Street expects $ 12.09 billion in revenue from Cisco, according to 22 analysts surveyed by FactSet, down from $ 13.43 billion reported last year. Cisco forecast revenue of $ 11.88 billion to $ 12.29 billion. Estimate expects revenue of $ 12.25 billion.
Cisco is expected to report $ 8.71 billion in product sales, with $ 6.48 billion in infrastructure platforms, $ 1.45 billion in applications, and $ 785.8 million in security, according to FactSet data. Services are estimated to count $ 3.37 billion in Cisco sales.
Action movement: In Cisco’s fiscal quarter, shares gained nearly 19%, while the Dow Jones Industrial Average DJIA,
– what Cisco counts as a component – increased 18%, the S&P 500 index SPX,
advanced 20% and the tech-heavy Nasdaq Composite Index COMP,
got 31%.
What analysts say
Evercore ISI analyst Amit Daryanani, who has an outperforming rating and a price tag of $ 54, said he sees an “attractive” setup for fiscal 2021.
“Our four-year controls suggest that corporate / campus market share remained weaker, while service provider and core data center products remained more stable,” said Daryanani. “Furthermore, we are seeing healthy acceleration in applications and security seeing the increased relevance of these solutions.”
“Although CSCO is facing a slower business environment and delivery issues this quarter, remote-controlled tailwinds should benefit from safety / applications delivering an offset,” according to Daryanani.
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JPMorgan analyst Samik Chatterjee, who has a neutral rating on Cisco and a price tag of $ 50, said investors are already expecting better sequential growth in the current fiscal fourth quarter of Cisco, given resistance in corporate IT spending as indicated by channel checks in the quarter.
“While there are multiple leverages in relation to sales and marketing costs, such as purchases to deliver upside on revenue, we think investor focus in the quarter will remain on revenue and order backlogs,” according to Chatterjee.
“Although, we could see modest upside to sell consensus of the better than feared spending,” Chatterjee said, “we believe investors are already pricing in the chance of modest upward versions of earnings, and limited upside in the shares of current levels. “
Of the 27 analysts who cover Cisco, 14 have bought reviews as overweight and 13 have reviews for holdings, with an average price target of $ 50.05.
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