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Cisco on Track to Beat Earnings Estimates Again

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Aug. 9 2019, Published 7:23 p.m. ET

Cisco is likely to beat the guidance figures given the high number of its upward revisions. In its third quarter of fiscal 2019 earnings report, Cisco (CSCO) posted $13.0 billion in revenue against a $12.89 billion consensus estimate.

While releasing the earnings report for the third quarter of fiscal 2019, Cisco provided its guidance for the fourth quarter. In this guidance, the company noted that it expects its revenue to increase up to 6.5% year-over-year. The company also expects its earnings per share to fall $0.80–$0.82.

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However, there have been various revisions in the guidance (upward and downward) in the last 90 days. Notably, its earnings per share have since been revised 12 times upward and six times downward in the previous three months. As the company approaches the earnings release date for Q4, its EPS remains $0.82 on the upside.

Looking at the last four quarters, one can see that Cisco has beaten estimates consistently. During the fourth quarter of fiscal 2018, the company’s actual EPS reached $0.70 against a consensus of $0.69. In the first quarter of fiscal 2019, its actual EPS reached $0.75 against a consensus of $0.72. Cisco’s EPS results for the second and third quarters of fiscal 2019 beat Cisco’s earnings estimates by $0.01 each.

Wall Street expects Cisco’s sales to grow 3.5% during the fourth quarter of fiscal 2019. This informs the $0.81 consensus EPS for the quarter, which represents 15.7% growth from the EPS for the fourth quarter of fiscal 2018.

Annual EPS quite low

However, Cisco’s annual earnings per share figures are on the lower end. In the last four years through to 2018, its annual EPS have been mixed. In 2015, the annual EPS figure was $1.75, which improved to $2.11 in 2016. The figure dropped to $1.9 in 2017 and dropped further down to $0.02 in 2018. The annual EPS in 2018 was quite low due to the large number of shares repurchased during that period.

In total, Cisco repurchased 432 million shares in 2018 compared to 148 million shares repurchased in 2017. The largest share of 50% of Cisco’s primary uses of cash went to share repurchases in 2018. The company spent 8% of its capital on acquisitions, 17% on dividends, and 2% on capital expenditure. The remaining 23% went to loan repayments. Given the vast number of diluted shares repurchased, it is possible that the EPS for 2019 will be higher than in 2018.

Despite problems in Cisco 220 Series Smart Switch, it is expected to beat earnings estimates yet again. According to the company, “Multiple vulnerabilities in the web management interface of Cisco Small Business 220 Series Smart Switches could allow an unauthenticated, remote attacker to overflow a buffer.” Although there is a patch in place for the vulnerabilities, it is possible for the issue to affect sales.

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