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Cisco Systems, Inc. Earnings Preview: Stock Up, Modest Beat Expected

Cisco Systems, Inc. (NASDAQ:CSCO) is scheduled to release its Q2 F2018 earnings results after closing bell tonight. Analysts are expecting the Cisco Systems earnings report to show non-GAAP earnings of 59 cents per share on $11.8 billion in revenue. The company guided for earnings of 58 cents to 60 cents per share on $11.7 billion to $11.93 billion in sales.

Consensus projects Cisco Systems’ switching revenue at $3.33 billion, service revenue at $3.13 billion, NGN routing revenue at $1.84 billion, and collaboration revenue at $1.09 billion. Analysts are also expecting $797 million in data center revenue and $582.8 million in security revenue.

cisco systems earnings q2 f2018
By Cisco [Public domain], via Wikimedia Commons
In a preview note on the Cisco Systems Q2 F2018 earnings report, GBH Insights analyst Daniel Ives said his channel checks suggest that the company’s results will be at least in line with expectations, if not better. He sees a “possibility of some modest upside” in revenue, especially in the switching and security divisions.

He’s not expecting any “major surprises” as far as guidance for the Cisco Systems earnings results for the April quarter. Ives maintained his Attractive rating and $45 target price on Cisco Systems stock ahead of the Q2 F2018 earnings release.

Wells Fargo analyst Aaron Rakers went further on Cisco Systems stock and said he recommends buying it ahead of the earnings release. He’s looking for a top-line beat at $11.9 billion and non-GAAP EBIT at or above management’s guidance of 29.5% to 30.5%. That would put Cisco Systems earnings at 60 cents per share, ahead of expectations.

For Q3 F2018, he currently estimates Cisco Systems earnings at 64 cents per share on $12.35 billion in sales. That’s ahead of the consensus at 62 cents per share and $12.12 billion in revenue, and he expects the company’s guidance to be in line with or slightly ahead of his estimates.

Rakers raised his target price for Cisco Systems stock from $42 to $47 per share in his earnings preview note. Higher estimates reflect the recent Broadsoft acquisition and the reduced tax rate and result in the higher target price for Cisco stock.

He explained that the ongoing transformation of the company’s business model to one based on growing recurring revenue is the main driver of his bullish thesis for the stock. He expects Cisco Systems’ recurring product revenue to increase from 10% of total product revenue in fiscal 2017 to 20% by fiscal 2020. He added that in Q1 F2018, the company’s recurring revenue rose 8% year over year to $3.9 billion, including $1.09 billion in recurring product revenue.

Ahead of the Cisco Systems earnings release for Q2 F2018, the company’s stock jumped by more than 1%, rising as high as $41.99 per share in anticipation of the results.