Cisco Systems, Inc. (NASDAQ: CSCO) is due to report its quarterly earnings in less than a week. So what is a guy supposed to think when he sees two strong analyst upgrades on such a big powerhouse like Cisco ahead of its earnings? Logic would say that Cisco is going to have on great quarter or at least do better than what the low expectations are.
If these analysts are correct, we could see a resurgence of investor interest in the networking space. Networking and communication providers such as Juniper Networks, Inc. (NYSE: JNPR), Brocade Communications Systems, Inc. (NASDAQ: BRCD), Riverbed Technology, Inc. (NASDAQ: RVBD), and even the poor turnaround of Alcatel-Lucent SA (NYSE: ALU) could all stand to benefit. These have all remained somewhat out of favor with investors.
Before getting too detailed here, logic and stock trading do not alway’s match up. Still, the two upgrades were strong upgrades. Piper Jaffray raised its rating to Overweight on the notion that cost controls would allow for a very respectable earnings report next week. The big call was the move to the Goldman Sachs highly prized Conviction Buy List. In the Goldman Sachs call, the firm used data from recent IT-spending surveys showing a return of demand from telecom providers and datacenter operations.
Cisco shares are so far believing the notion that these analysts have better information that what Main Street had as of yesterday’s close. The DJIA is marginally in the red and the NASDAQ is marginally green. Cisco’s stock is up 2.3% at $17.57 against a 52-week range of $14.90 to $21.30 and against a Thomson Reuters consensus analyst price target of $21.04 before the effect of these analyst upgrades.
Again, Cisco reports earnings next week. Thomson Reuters has a consensus estimate of $0.46 EPS and it sees revenues at $11.62 billion as of now. That would represent some 15% earnings per share growth on almost 4% sales growth.
Keep in mind that there are no assurances that Cisco will have great earnings. It does have high exposure to emerging markets, China, and Europe. That being said, two Wall Street analysts seem to think that the earnings will be good news.
JON C. OGG