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Cisco Systems Inc. investors get to see if the network equipment and software company is on track with its forecast return to seasonal order growth, boosted by software sales, while it draws down inventory.
Cisco
CSCO,
is scheduled to report its fiscal fourth-quarter earnings Wednesday after the market close.
Raymond James analyst Simon Leopold, who has an outperform and a $64 target, said his channel checks support Cisco that forecast, and expects year-over-year growth likely in the second half of fiscal 2024.
“In addition to better orders, we are optimistic that an easing supply chain will enable Cisco to convert its outsized backlog, while [annual recurring revenue] growth should improve with attached software sales,” Leopold said. ARR is a metric often used by software-as-a-service companies to show how much revenue the company can expect based on subscriptions.
“Investor sentiment remains mixed with increased interest related to AI optimism as well as the improved 2nd derivative on orders vs. expectations for share loss and sales declines,” Leopold noted.
KeyBanc analyst Thomas Blakey, who has a sector weight rating on Cisco, expects in-line results from the company given that enterprise order have lagged lately, and said he’ll be looking for color on an issue that has plagued tech companies since last year: inventory drawdowns.
“In our view, management commentary on order rate improvement as well as additional color on backlog drawdown will be important to lookout for post peer reports highlighting increased drawdown and order rate softness from certain verticals,” Blakey said.
Citi Research Atif Malik on Friday opened a “positive catalyst watch” on Cisco, while viewing the stock as a “mixed bag,” expecting the company to outperform peers Arista Networks Inc.
ANET,
and Juniper
JNPR,
as “strong enterprise demand likely fuels upside” to the July ending quarter results.
“While we like its growing software and diversified sales mix, we see this as offset by market share challenges in switch/security end markets and lower relative cloud exposure,” Malik said. The analyst currently has a neutral rating on the stock.
Analysts surveyed by FactSet expect fourth-quarter earnings of $1.06 a share on revenue of $15.05 billion, a 14.9% gain from a year ago.
Of the 27 analysts who cover Cisco, 11 have buy-grade ratings, 15 have hold ratings, and one has a sell rating, along with an average target price of $55.84.
Year to date, Cisco shares are up 12.9%, compared with a 6.4% rise for the Dow Jones Industrial Average
DJIA,
of which Cisco is a component. Results compare to a 16.3% gain on the S&P 500 index
SPX,
and a 30.4% rally for the tech-heavy Nasdaq Composite
COMP.
