Oppenheimer Warns Cisco's Outlook Could Be At Risk; Maintains Outperform Ahead Of Q3 Results

Oppenheimer has warned that the fourth quarter outlook of Cisco Systems, Inc. (NASDAQ: CSCO) could be "at risk," saying that the networking gear maker could face a challenge in meeting consensus targets.

The Street consensus revenue estimate for the July quarter is currently $12.46 billion, implying a QoQ growth of 4 percent and year-over-year drop of 3.10 percent. Excluding the extra week from the third quarter estimates, analyst Ittai Kidron noted the implied revenue growth in the fourth quarter would actually be 6.2 percent QoQ growth.

"We think this is a high bar considering the macro backdrop and our checks, which leaves us cautious on outlook. We also note that our 4Q16 checks appear to be weaker than each of past five years," Kidron explained.

Related Link: Brocade Peers Largely Unaffected Following Q2 Warning

Quarterly Guidance Expectations

Kidron, who expects Cisco's July quarter guidance mid-point could come $200 million–$300 million below consensus, highlighted that the current consensus view of 6.2 percent QoQ revenue growth could be overly aggressive due to the mixed macro backdrop and incorrect sell-side modeling.

"Taking this into consideration, we see in-line guidance as best-case scenario and see risk of below-consensus revenue guidance," Kidron elaborated.

For the fourth quarter, Kidron sees EPS of $0.57 on revenue of $12.12 billion (+1.8 percent QoQ, +3.9 percent QoQ 13-week adjusted).

Meanwhile, the analyst expects Cisco report its third-quarter results "in-line to potential upside."

Looking Forward

Cisco is expected to release its third-quarter results on May 18. The Street expects earnings of $0.55 a share on revenue of $11.98 billion. Kidron sees EPS of $0.54 on revenue of $11.90 billion, while Cisco has guided for sales of $11.73 billion–$12.08 billion.

Product wise, the analyst's checks into Cisco's switching business suggest stability despite weak campus demand at the beginning of the year. Furthermore, the analyst noted that checks point to improved demand for UCS and security, key to Cisco's ability to drive growth.

"While we acknowledge NT challenges, we're positive LT given Cisco's business model shift to subscription-based solutions," Kidron added.

The analyst reiterated his Outperform rating and $30 price target on the stock, which were down 0.59 percent to $27.33 mid-afternoon Monday.