|3 Reasons to Be Bullish on Cisco Stock Ahead Of Earnings -- Barrons.com|
10:43 AM ET 8/12/19
|4:00 PM ET 8/12/19|
|Real time quote.|
By Eric J. Savitz
Tech stock earnings season continues this week, as Cisco Systems (ticker: CSCO) reports earnings Wednesday for its July quarter. And there are reasons for optimism about the networking equipment giant's shares.
J.P. Morgan analyst Samik Chatterjee pointed out in a research note Monday that the stock is trading about 10% below its 52-week high, pressured by investor concerns about the U.S.-China trade spat, and a nasty earnings disappointment from NetApp (NTAP) that hinted at softening Enterprise IT spending.
But Chatterjee repeated his Overweight rating and $62 price target on the stock, and offered three reasons he thinks the bearish tone on the stock is overdone:
-- Both of the company's most direct competitors in networking hardware,
Arista (ANET) and Juniper (JNPR), recently reported strong enterprise
-- While the macro economy uncertainty appears to be "elongating sales
cycles for large award wins with larger enterprises," Cisco's deep
customer footprint across a range of small- and medium-size business and
enterprise customers will limit the impact on its results, he adds.
-- And Chatterjee says Cisco's "accelerating top-line momentum" -- driven by
product cycles in campus switching and security -- as well as a coming
product tailwind in Wi-Fi equipment, "will allow the firm to offset macro
For those reasons, Cisco can show top-line acceleration, with mid-single-digit revenue growth going forward, Chatterjee writes. "We believe the recent weakness in CSCO shares offer an attractive entry point," he writes. The stock trades at 15.4 times earnings on a next 12 months basis, below the market multiple at 16.7 times, despite a "superior medium-term top-line and earnings growth outlook."
For Cisco's fiscal fourth quarter ended July 31, Street consensus calls for revenue of $13.39 billion, up 6%, with earnings of 82 cents a share. Cisco's guidance for the quarter called for revenue growth of 4.5% to 6.5%, with non-GAAP profits of 80 to 82 cents a share.
On Monday morning, Cisco stock fell 21 cents, or 0.4%, to $52.22.