Earnings Outlook: Cisco earnings preview: Can it pull out of a ‘shallow pause’?

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Cisco Systems Inc. starts the calendar under the dark cloud of what it calls a “broad-based” slowdown in tech spending.

Those were its stark words in November when it projected revenue would decline by 5% or more in the current period. The computer-networking giant CSCO, +1.88%  reports second-quarter results Wednesday after markets close.

See also: Cisco confirms fears of a ‘broad-based’ slowdown in tech spending

Three months ago, Cisco executives warned that a slowdown affecting parts of the market had expanded into almost all corners of the world. “It feels like there’s a bit of a pause,” Chief Executive Chuck Robbins said in the conference call then.

While there have been signs of stabilization in the macroeconomic climate, concerns about Cisco linger. In maintaining a neutral rating and price target of $45 on Cisco shares, Instinet analyst Jeffrey Kvaal says it is “too soon to call a turn.”

“Our work indicates the IT spending climate has not eased materially since the fall,” Kvaal said in a Feb. 4 note. “The Phase One trade deal [with China] has helped; Cisco itself has referenced a ‘shallow pause.’ However, we find scope for further retrenchment given, of course, coronavirus uncertainty, but also chip shortages and perhaps political ambiguity.”

Kvaal expects Cisco to offer third-quarter guidance of $12.5 billion in revenue and net income of 80 cents per share — roughly in line with FactSet’s prediction of $12.6 billion and 71 cents per share, respectively.

What to expect

Earnings: Of the seven analysts surveyed by FactSet, Cisco on average is expected to post earnings of 66 cents a share, down from the 69 cents expected at the beginning of the quarter. FactSet analysts expect net income of $3.2 billion in the quarter.

Estimize, which crowdsources estimates from buy and sell-side analysts, fund managers, academics and others, is forecasting earnings of 76 cents a share, based on 77 estimates.

Revenue: Wall Street expects revenue of about $12 billion from Cisco, according to 21 analysts polled by FactSet. Cisco reported revenue of $12.4 billion during last year’s second quarter, and net income of $3.3 billion, or 73 cents per share.

Estimize is forecasting revenue of about $12 billion, based on 76 estimates.

According to FactSet data, of the 26 analysts who cover Cisco, 14 have buy or overweight ratings, 12 have hold ratings, and none have a sell rating, with an average price target of $52.52.

Stock movement: Cisco shares are up 1.5% over the past 12 months, compared to a gain of 23% for the broader S&P 500 index SPX, +0.73%  during the same period.

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