Cisco Systems, Inc. (CSCO) is set to report third quarter 2013 results on May 15. Last quarter it posted a 9% positive surprise. Let’s see how things are shaping up for this announcement.
Growth Factors this Past Quarter
Though Cisco was affected by the sluggish macro environment, the company’s sales growth rates in the second quarter were above the year-ago comparable period and better than management guidance, attributable to the ramp of several important products and strength in the Data Center, Switching and Wireless lines of business. Order growth was quite encouraging and the trend is reflective of Cisco’s superior strategy and innovation.
However, margin expansion was limited due to an unfavorable mix and increased expenditure on new products.
The company’s restructuring activities to expand its operations in certain strategic areas including cloud computing and the pursuance of growth opportunities in international markets could be potential catalysts going forward. However, we believe that the intense competition in the company's core businesses of routers and switches remains a matter of concern.
Our proven model does not conclusively show that Cisco will beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method)and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 45 cents. Hence, the difference is 0.00%.
Zacks Rank #4 (Sell): We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Our model states that a stock needs to have both a positive earnings ESP and a Zacks Rank #1, #2 or #3 to beat earnings estimates. You could, therefore, consider other stocks instead like:
Webcom Group Inc (WWWW), with Earnings ESP of +2.38% and Zacks Rank #3 (Hold)
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