What Are Wall Street's Top Analysts Saying About Cisco Before Thursday's Results?

Cisco Systems is scheduled to report its first quarter 2016 (October ending) results after Thursday's market close. The Estimize community (based on 217 estimates) is expecting the company to earn $0.57 per share on revenue of $12.695 billion, while the Wall Street consensus estimate is looking for an earnings per share of $0.56 on revenue of $12.636 billion.

Cisco previously said it expects to earn $0.56 per share on revenue of $12.613 billion.

Here is a roundup of what some of Wall Street's top analysts are saying ahead of the print.

Related Link: FBR's Ives Believes Cisco Earnings Will Be "Another Barometer For Tech Spending"

FBR: Cisco's Results Another Tech Barometer

Daniel Ives of FBR & Co. commented in an industry-wide note that tech investors will be paying close attention to Cisco's results, as they look for signs of traction around the core networking business, new strategic initiatives, health of the Chinese business and commentary on the overall IT spending environment.

Ives added that Cisco is a "key barometer" of the tech space. As such, investors will also be looking to see if Cisco will follow the lead of some of its mature tech peers and demonstrate growth. Described "like watching grass grow," the large traditional IT vendors face an "Everest-like climb in their quest for success in this ever-changing IT landscape."

BMO: Near-Term Expectations Are ‘Reasonable'

Tim Long of BMO Capital Markets commented in a note that Cisco is expected to report a "solid" quarter, as near-term expectations are "reasonable."

Long is expecting Cisco to report "modest upside" in its results given "few" near-term headwinds outside of emerging markets, which have been "weak for a while." More importantly, the analyst noted he is "encouraged" by Cisco's momentum in software and subscription-based offerings.

Long continued that Cisco is in the middle of a longer-term, multi-product cycle across "significant" parts of its business, which should support the company's results over the next few quarters to develop greater revenue predictability and sustainable margins. In the interim, the company's management is "executing well," while the stock's valuation is "compelling" and they are trading at less than 12x CY16 of earnings per share of $2.39.

Shares remain Outperform rated with an unchanged $34 price target.

Related Link: Ericsson In Strategic Partnership With Cisco

Keybanc: ‘Healthy Start'

Analysts at Keybanc briefly commented that their field checks point to a "healthy start" to fiscal 2016. Specifically, field checks with their partners suggest that demand "remains brisk" for Cisco's products, especially in the Americas.

Over the longer term, the analysts noted positives include a new leadership divesting non-core assets while investing in security and software.

Shares remain Overweight rated with an unchanged $36 price target.

Pacific Crest: Cisco-Ericsson Partnership Commentary

Brent Bracelin of Pacific Crest commented in Cisco's announcement during the quarter that it will partner with Ericsson (ADR) (NASDAQ: ERIC) on services, products and joint R&D.

Bracelin commented that the positive implications for Cisco from the deal include a potential for share gain in routing, switching and servers, along with the ability to leverage Ericsson's professional services arm.

Bracelin added that for every $500 million of incremental revenue Cisco generates from the agreement, it could boost the company's growth rate by approximately 100 basis points and add $0.02 per share in fully taxed earnings.

Shares were Overweight rated with a $36 price target at the time of the analyst's commentary on November 9.

Credit Suisse: ‘Secular Concerns' Ongoing

Kulbinder Garcha of Cisco commented in a note that his near-term IT data points "remain mixed." The emergence of SDN will create "continued headwinds" for the company despite expectations for a roughly in-line first quarter.

Garcha is expecting Cisco to earn $0.56 per share in the first quarter on revenue of $12.6 billion.

Garcha continued that despite Cisco's near-term momentum, the impact of SDN could threaten the company's most profitable part of the IT stack. The analyst added that it will introduce competition at multiple points in the network and, while the impact will take time, the threat to Cisco will be "very real," including "shrinking" gross profit dollars for the entire networking stack.

Bottom line, the analyst is expecting continued margin pressures and project operating margins of 26 percent over the long term, implying "little" earnings per share growth despite ongoing buybacks.

Shares remain Underperform rated with an unchanged $22 price target.

Morgan Stanley: Expecting An ‘OK' Quarter

James Faucette of Morgan Stanley commented in a note that his channel checks suggest Cisco will report an "OK" quarter.

Faucette continued that back in October his checks reported a "slower than usual start" for Cisco, marked by a "prolonged digestion period" and "disruptions from changes to the sales force." However, when following up with his checks, the analyst noted an "expected ramp" in switching purchases, but "frequent ‘stretching' was needed to make up for the slow start."

Faucette also noted that most resellers he spoke to believe their pipeline for the remainder of the year "remains as expected" as enterprises are expecting year-over-year growth in networking pend across most categories.

"In particular, we think the Nexus switching pipeline remains strong as customers seek to refresh and add capacity ahead of deploying business applications and flash storage," Faucette wrote. "Mitigating that strength, some have expressed concern that the pending Dell/EMC transaction is leading some customers to reevaluate their server and storage purchases, which could defer large networking projects into the next calendar year."

Finally, Faucette noted that while he is expecting management to deliver "positive commentary" on the January quarter, potential disruptions from Dell/EMC leaves him "slightly cautious."

Shares remain Equal Weight rated with an unchanged $30 price target.

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