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Cisco Systems (CSCO) Q4 Earnings on Deck: Is Now the Time to Buy?

Christopher Vargas

Cisco CSCO is set to report its fourth quarter earnings Wednesday after the closing bell. The company is up 21.6% year-to-date, slightly outpacing the broader computer networks market. The company is looking to continue its return in the second half of 2019 with a solid Q4 report. Cisco is the largest player in the networking space, but can it pull off a solid Q4 report to close out its fiscal year? Let’s take a more in depth look into the networking company and how they might stack up to conclude its fiscal year.

Company Overview and Q3 Recap

Cisco is based out of San Jose, California and was founded in December 1984. CSCO is an IP-based networking company that offers products and services to service providers, companies, and commercial users. They provide connectivity to end users, workstations, IP phones, access points, and servers. Cisco has been benefiting from expanding its footprint in the rapidly growing security market. Order strength and improving traction of the subscription-based business model have further supplemented the company. The company’s low revenue exposure to China also cements the stock as a sound investment during times of global uncertainties. The company’s partnerships with the likes of Telenor TELNY, Apple AAPL, Microsoft MSFT, and others bode well for the company.

In Q3 2019, Cisco generated $13 billion in revenue and reported earnings of $0.78 per share, beating estimates by 0.6% and 1.3%, respectively. Revenue grew 6% year over year while earnings made a 18% leap. Net income also grew 13% to $3 billion in the third quarter. Product sales brought in $9.72 billion in revenue for a 4.49% jump while service revenue increased 2.44% to $3.24 billion. Infrastructure platforms grew 5% to $7.55 billion while applications gained 9% to $1.43 billion. Security products surged 21% to $707 million, beating our estimate by 7.66% and other products significantly surpassed estimates by 81.4%, brining in $39 million.

Q4 Outlook

For Q4, consensus estimates are projecting earnings to increase 17.14% while revenue to jump 4.22% to $13.39 billion. Our Key Company Metric estimates are forecasting product revenue to increase 4.3% to $10.06 billion while services to generate $3.31 billion for a 3.39% gain. Infrastructure products are expected to total $7.82 billion in Q4. Infrastructure products have beat our estimates for the past four quarters for an average surprise of 2%. Applications revenue missed our estimate by 6.69% last quarter, but estimates are projecting for the segment to hit $1.48 billion in Q4. Security revenue beat estimates the past two quarters; Q4 projections are estimating $720 million in revenue. Other product revenue is expected to fall 83.6% to $38 million in Q4.

Cisco is coming off a quarter where it had solid year over year growth. A similar Q4 report could help further boost the stock and would solidify their fiscal year. Order growth in new markets remained strong and the company’s market position provides further security. Their dividend yield of 2.63% further compliments the stock as a sound buy for investors. The company’s management execution has been solid lately as well. The net-cash balance of $10.95 billion as of April 27, 2019 provides the flexibility to pursue any growth strategy. CSCO is a Zacks Rank #3 (Hold) with a Style Score of B in Growth. Estimates are looking solid for the company’s full fiscal year outlook with 18.46% growth to $3.08 per share.

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