- Wall Street forecasts $0.837 EPS on $13.3 billion revenue
- Rapidly growing subscriptions services
- Stock has underperformed S&P 500 in 2022, -29% versus -17%
The US tech-heavy Nasdaq Composite has soared 1,000 points in the past week, or about 10%, as investors embraced growth stocks for the first time in ages. This newfound optimism could be given an extra boost when Cisco Systems (CSCO:NASDAQ) reports fiscal first-quarter results after Wall Street closes this evening (16 Nov), with a real hope that the numbers could beat forecasts.
Cisco Systems is an IP-based networking company offering products and services to internet service providers, enterprises, government organisations and consumers. Its’ kit is effectively the nuts and bolts that make the internet work and so it is followed closely as a proxy for corporate spending on technology infrastructure.
The shares have had a tough 2022, like most in the tech space, down nearly 30% year-to-date and underperforming the S&P 500’s 17% decline.
WHY CISCO COULD OUTPERFORM
Despite being shunned by investors, Cisco is a relatively defensive tech company that should be able to manage further economic shocks and lower IT investment, or better than most.
Part of the reason why is that much of the equipment Cisco sells needs upgrading as the world increasingly embraces new tech trends, like cloud computing, hybrid working, network security and 5G superfast mobile technology where spending is holding up well.
This shown by Cisco’s steady order pipeline, with networking and security technology mission critical for companies, unlike refreshing PCs, for example.
In August’s earnings call, Cisco chief executive Chuck Robbins revealed revenue performance obligations (effectively, contracts signed but not necessarily fulfilled) of more than $31 billion. ‘When combined with low cancellation rates, which remain below pre-pandemic levels, this sets the stage for increased visibility and strong revenue growth as we head into fiscal 2023,’ Robbins said.
This may suggest that there is genuine scope for the $184 billion company to beat already low expectations, with the company itself guiding for around 4% to 6% revenue growth. This will be helped by supply chain issues that have gradually eased off.
Wall Street analyst consensus is for $0.837 of earnings per share on $13.3 billion revenue in the three months to 30 September 2022.
FAST-GROWING SUBSCRIPTIONS
Another positive factor to consider is that Robbins has been shifting Cisco’s focus to remote delivery of its networking services over the internet. The idea is to pursue more sources of revenue beyond the networking equipment that is Cisco’s historical money-spinner.
Things like security and internet optimisation tools are increasingly sold on a subscription basis, and software sales have grown to become a significant part of total revenue. This was about 30% in 2021 and hit 43% of revenue during the fiscal quarter that ended 31 July 2022. The company wants subscriptions to generate 50% of annual revenue in its fiscal 2025 year.
Cisco stock is expected to open at $45.10 later today.
