Cisco, NetApp, Cray, Brocade Earnings Previews Broadly Neutral

Cisco Systems

Sterne Agee analyst Alex Kurtz, Amelia Harris and Craig Jones have quick takeaways on upcoming earnings this week for Cisco Systems, Inc. (NASDAQ:CSCO), NetApp Inc. (NASDAQ:NTAP), Cray Inc. (NASDAQ:CRAY) and Brocade Communications Systems, Inc. (NASDAQ:BRCD).

From key enterprise companies reporting this week, we expect to hear the continuing theme of an improving domestic IT environment with likely ongoing headwinds from BRIC countries (i.e., no major shift in sector outlook expected). We like Cisco Systems, Inc. (NASDAQ:CSCO) with an expanding product portfolio against modest investor expectations and Cray Inc. (NASDAQ:CRAY) with continuing share gain opportunities vs. International Business Machines Corp. (NYSE:IBM); and remain cautious on NetApp Inc. (NASDAQ:NTAP)’s FY2015 growth rates and Brocade’s likely OEM storage headwinds.

Expecting in-line results for Cisco Systems

After last quarter’s severe reset on guidance of down 8-10% Q/Q on January revenue, investor expectations remain modest with most viewing the story as now a GDP grower with some optionality into Storage, Security, and Wireless as new growth vectors (about 15% of total revenue). With Cisco Systems, Inc. (NASDAQ:CSCO) stock at 8x CY2015 adjusted EPS, we see downside protection to $21 and manageable consensus product growth into FY2015 of ~3% (vs. EMC’s commentary of ~2% Y/Y growth for CY2015). Key metric: BRIC countries’ growth of down ~20% last quarter – the market is expecting similar results from Cisco Systems, Inc. (NASDAQ:CSCO) given peer performance.

Expecting in-line results for NetApp

We remain roughly in line with consensus growth rates at down 3% and up 4% in product revenue in FY2014 and FY2015 vs. Street estimates at down 2% and up 3%. Our investment thesis on NetApp Inc. (NASDAQ:NTAP) has shifted in the last few months to greater caution surrounding share gain opportunities in the channel as vendors like Pure, Nutanix, and Nimble vie for technical resources with national VARs. Key metric: Branded product growth that we estimate close to 1% Y/Y in the quarter vs. our 2% estimate in October). With the stock close to 10x CY2014 adjusted EPS, we believe it reflects an in-line to improving branded growth rate. Risks to our Neutral rating include a reacceleration of U.S. Federal spend in the company’s 1H2015 outlook (15% of revenue).

Neutral expectations from Cray

No major change expected in the company’s earnings Thursday after it preannounced CY2013 and CY2014 revenue that was in line with consensus estimates on 1/6/14 (24% Y/Y and 15% Y/Y implied revenue growth). The focus on the call will be IBM share gain opportunities and what is included in management’s assumptions for the year (we have estimated over $300M opportunity for Cray Inc. (NASDAQ:CRAY) over the next 2-3 years). Also, we expect management to highlight some uRika/Big Data wins that, while not revenue impactful, in the near term could help the multiple longer-term (enterprise-focused, higher GM platform). We see upside to $34 near-term based on a sum of parts revenue analysis.

Brocade Communications rated neutral

Given the tepid near-term outlooks from key storage OEMs such as EMC Corporation (NYSE:EMC) and International Business Machines Corp. (NYSE:IBM), we are not expecting significant upside to management’s guidance for 1Q14 of 3%-5% Q/Q Storage growth. (We are at 3%, representing 70% of total revenue.) Brocade management has executed well at moving to a more shareholder-friendly posture last year with 60% cash flow return to shareholders and opex realignment, yet we don’t see a near-term fundamental catalyst to help expand the close to 11x CY2015 adjusted EPS multiple (VDX remains a key next-gen platform but still a small revenue contributor).

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