What To Expect From Cisco Systems (CSCO) In Q4 Earnings?

Cisco Systems, Inc. (NASDAQ:CSCO) is set to report fourth-quarter fiscal 2016 results on Aug 17. Last quarter, the company’s earnings matched the Zacks Consensus Estimate.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Despite intensifying competition from several smaller players, Cisco remains strong in its domain.

Cisco’s strategy of diversifying its business by introducing software-based networking tools and security services, and relying less on specialized routers and switching equipment appears to be yielding results.

During the third quarter, Cisco completed a few acquisitions including Jasper Technologies, Acano, Synata, Leaba and CliQr, increasing its share in the fast growing cloud, IoT, data analytics and video markets. Moreover, continued share buyback and dividend hikes should inspire investors’ loyalty.

However, weakness in a few emerging markets, slower growth across Switching, Data Center and Service Provider Video, and a weak macro environment could impact profitability in the near term.

For the fourth quarter, Cisco expects revenues to increase in the range of 0% to 3% on a year-over-year basis. This guidance excludes the contribution from the SP Video CPE Business. On a non-GAAP basis, gross margin is expected within 63%–64% and operating margin is projected in the range of 29%–30% of revenues. The company expects a non-GAAP tax rate of 22%, yielding non-GAAP earnings per share of 59 cents to 61 cents. GAAP earnings per share are expected in the range of 48 cents to 53 cents.

Earnings Whispers

Our proven model does not conclusively show that Cisco Systems will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 50 cents. Hence, the difference is 0.00%.

Zacks Rank: Cisco has a Zacks Rank #3, which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks, which you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Carbonite, Inc. (NASDAQ:CARB) , with an Earnings ESP of +50.00% and a Zacks Rank #1.

Stoneridge Inc. (NYSE:SRI) with an Earnings ESP of +5.71% and Zacks Rank #1.

Cognex Corporation (NASDAQ:CGNX) with an Earnings ESP of +2.17% and Zacks Rank #1.