Technology

Technology Could Take Off Big Time If Cisco Beats Earnings Estimates

Lee Jackson

After the closing bell Thursday, Cisco Systems Inc. (NASDAQ: CSCO) will report first-quarter fiscal 2016 results. The networking giant, which is considered a bellwether technology stock, could help to lead the way for a push higher in technology. Despite an incredible nonfarm payroll report last Friday, the market has been taking it on the chin this week, and most of the indexes are either break-even or down for the year.

Most of the firms that we cover here at 24/7 Wall St. are reasonably optimistic that Cisco will come in at or above the current consensus estimates. One of the hot topics concerning the company lately was the recent deal it signed with Ericsson. The two firms have announced a major partnership covering service provider, enterprise and Internet of Things markets. They expect incremental revenues from the deal in 2016, and for each to have over $1 billion in additional sales by 2018. The deal took over a year to put together and is considered by some to be a negative for Juniper Networks.

Recently Cisco has contended with a slowdown in demand from service providers and telecom carriers, as well as weak results in select emerging markets and concerns that the software defined network (SDN) will enable competitors to gain market share in the switching market, which is a very lucrative business for Cisco.

Analysts across Wall Street point to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. Many think that Meraki is likely to be a $1 billion plus run-rate business this year, with an incredible 50% to 70% compounded annual growth rate. A jump from 40 GE to 100 GE data center switching and next generation security are also adding to the total sales profile and product mix. This is another company leveraged to the huge deployments at data centers and that growth is not expected to stop any time soon.

The consensus Wall Street estimates for the most recent quarter are revenues of $12.65 billion and earnings per share of $0.56. Specifically, profits for the first quarter of fiscal 2016 are anticipated to increase 4% year over year and sales are expected to grow 3.3%, according to data from The Wall Street Journal.

The stock traded up Thursday, and that reflects an overall Wall Street positive feeling for the numbers — especially on a day when the rest of the market is acting very poorly. Cisco is also one of the 24/7 Wall St. top 10 stocks to own for the next decade.

Cisco investors are paid a solid 3% dividend. The Thomson/First Call consensus price target for the stock is $31.14. Shares were trading near midday at $28.00.