Cisco (CSCO) is scheduled to report results of its fiscal third quarter after the market close on Wednesday, May 15, with a conference call scheduled for 4:30 pm ET. What to watch for:
1. Q3 EPS CONSENSUS UP A TICK: Along with its last report, Cisco guided for Q3 adjusted earnings per share in the range of 76c-78c on revenue growth of 4%-6%. At the time, analysts were expecting the company to report Q3 EPS of 76c on revenue of $12.84B, but those figures have since risen to 77c and $12.89B, respectively. In addition, Cisco guided for Q3 adjusted gross margin rate of 64%-65% and adjusted operating margin rate of 31%-32%.
2. BUYBACK/DIVIDEND: In addition, Cisco announced in its previous earnings report that its board of directors had approved a $15B increase to the authorization of the stock repurchase program. The remaining authorized amount for stock repurchases including the additional authorization at the time was approximately $24B. Meanwhile, the board had declared a quarterly dividend of 35c per common share, a 2c increase or up 6% over the previous quarter's dividend, to be paid on April 24, 2019 to all shareholders of record as of the close of business on April 5, 2019.
3. GOLDMAN DOWNGRADE: In mid-April, Goldman Sachs analyst Rod Hall removed Cisco from his firm's Americas Conviction List but maintained a Buy rating o the stock, also raising the price target for the shares to $62 from $58. Hart said in a research note to investors that the company has executed well on rolling out its Catalyst 9000 products that have driven "solid" double digits growth in campus switching revenues, but noted that, with the stock up 31% since March 22, 2018, Cisco's business model transition is now better understood by investors. The analyst added that, nonetheless, he continues to see upside to consensus estimates.
4. COWEN 'BEST IDEA': Meanwhile, Cowen analyst Paul Silverstein earlier this week maintained an Outperform rating and $62 price target on Cisco Systems ahead of the company's Q3 results, calling Cisco his "Best Idea" for stocks in the networking sector this year. Silverstein said he continues to see upside to earnings power from improving competitive position and ongoing shift to recurring software revenue and anticipates Cisco's Q3 to offer further support for his view. The analyst noted that recent U.S.-China trade tensions, including tariff hikes, and related macro uncertainty bring a new challenge.
5. WIRED ARTICLE: On Monday, Wired's Lily Hay Newman reported that the Cisco 1001-X series play a major role at institutions, including some that deal with hypersensitive information, but now researchers are disclosing a remote attack that would potentially let a hacker take over any 1001-X router and compromise all the information and commands that flow through it. Newman noted that researchers say they are eager to see what types of fixes the company will release, but worry that it may not be possible to fully mitigate the vulnerability without physical alterations to the architecture of the hardware anchor.