Cisco (CSCO) is scheduled to report results of its fiscal second quarter after the market close on Wednesday, February 13, with a conference call scheduled for 4:30 pm ET. What to watch for:
1. Q EPS CONSENSUS UNCHANGED: Along with its last report, Cisco guided for Q2 earnings per share in the range of 71c-73c on revenue growth of 5%-7%. At the time, analysts were expecting the company to report Q2 EPS of 72c, and that estimate remains unchanged. In addition, Wall Street expects Cisco to report Q2 revenue of $12.41B.
2. LUXTERA DEAL: In mid-December, Bloomberg reported that Cisco was in talks to acquire optical chip technology company Luxtera, beating out rival bids from companies including Intel (INTC) and Broadcom (AVGO). A week later, Cisco confirmed its intent to acquire Luxtera, saying at the time that it planned to incorporate Luxtera's technology across its intent-based networking portfolio, spanning enterprise, data center and service provider markets. Under the terms of the agreement, Cisco will pay $660M in cash and assumed equity awards for the takeover of Luxtera, and the transaction is expected to close in the third quarter of 2019.
3. MORGAN STANLEY DOWNGRADE: On Tuesday, February 12, Morgan Stanley analyst James Faucette downgraded Cisco to Equal Weight from Overweight, saying the stock's multiple has meaningfully expanded over the past year and a half as estimates and expectations have built in a likely benefit from security-driven networking. The analyst, who also cut his price target on Cisco shares to $49 from $51, added that while he thinks the company is making steady progress towards a security-defined networking business model, his latest surveys indicate that the pipeline for Cisco's Security sales is flattening, which Faucette attributes partly to slowing improvements in its security portfolio. Additionally, the analyst said his industry talks in late January and early February suggest the government shutdown is having a follow through effect, which is slowing the normal seasonal improvement of the April quarter.
4. SHAKEUP: In mid-December, the San Jose Business Journal reported that Cisco was in the midst of a major shakeup as it moves to a software and subscription model in a transition away from its legacy business. The Journal noted at the time that Cisco's accelerator programs are not immune from the restructuring.
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