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What’s in the Cards for Cisco’s Q3 Earnings?

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Cisco Systems (NASDAQ:CSCO) stock rose 3.92% on May 8 and closed at $42.99. The stock was trading 26.2% below its 52-week high of $58.26. Meanwhile, the stock was trading 32.7% above its 52-week low of $32.40. At the closing price on May 8, Cisco had a market capitalization of $182.3 billion.

What can investors expect from Cisco’s results for the third quarter of fiscal 2020? The company will likely report its earnings results for the April ended quarter on Wednesday after the closing bell.

Cisco’s Q3 earnings expectations

Wall Street analysts expect Cisco to post sales of $11.9 billion in the third quarter—a fall of 8.4% YoY (year-over-year) compared to $13.0 billion in the third quarter of fiscal 2019. Also, analysts expect the company’s adjusted EPS to fall by 9.0% YoY to $0.71 in the third quarter.

In the third quarter, Cisco’s free cash flow will likely decline to $3.4 billion from $4.1 billion a year ago. The company’s operating cash flow could fall 18.6% YoY to $3.5 billion. Meanwhile, the company’s capital expenditures will likely decrease by 5.3% YoY to $216 million in the third quarter. Cisco could return $1.52 billion to shareholders in the form of dividends. On May 8, the company’s dividend yield was 3.35%.

Analysts also expect Cisco’s revenues to fall by 5.5% YoY in fiscal 2020 to $49.1 billion. The sales could rise by 1.6% YoY in fiscal 2021 to $49.9 billion. The adjusted earnings will likely fall by 1.6% YoY in fiscal 2020 to $3.05 per share. However, the profits could rise by 3.3% YoY to $3.15 per share in fiscal 2021.

Analysts’ recommendations for Cisco stock

Among the 28 analysts following Cisco stock, 14 recommend a “buy”—down from 15 in the last month. Meanwhile, 14 analysts recommend a “hold”—up from 13 in the previous month. None of the analysts recommend a “sell.” Analysts’ mean target price on the stock is $46.19, which implies a 7.4% gain from the current level of $42.99. The consensus target price for the stock has fallen from $47.05 in April—a fall of 1.8%.

In April, KeyBanc analyst Alex Kurtz downgraded Cisco stock from “overweight” to “sector weight.” According to a report from TheFly, “Economic weakness amid the COVID-19 pandemic could slow the pace of customer upgrades, Kurtz tells investors in a research note. The Catalyst 900 campus switch upgrade cycle is likely to see a moderated refresh growth rate over a longer period.”

Technical analysis

Based on the closing price on May 8, Cisco stock was trading 2.5% above its 20-day moving average of $41.95. The stock is also trading 7.6% above its 50-day moving average of $39.97 and 1.5% below its 100-day moving average of $43.63.

Cisco’s 14-day relative strength index number is 56. The number indicates that the stock isn’t oversold or overbought. Cisco’s lower, middle, and upper Bollinger Band levels are $40.40, $41.95, and $43.50, respectively. On May 8, the stock closed near its upper Bollinger Band level, which indicates that it’s overbought.

As of May 8, Cisco was trading at 14.08x analysts’ fiscal 2020 non-GAAP EPS estimate of $3.05 and at 13.66x analysts’ fiscal 2021 non-GAAP EPS estimate of $3.15. Analysts expect Cisco’s earnings to rise at a CAGR of 5.34% in the next five years.

Arista Networks (NYSE:ANET) generated sales of $523.0 million in the first quarter, which ended in March—a decline of 12.2% from the first quarter of 2019. The company beat analysts’ consensus revenue estimate of $517.9 million. In the first quarter, Arista Networks reported a non-GAAP EPS of $2.02 compared to $2.31 in the first quarter of 2019. The earnings beat analysts’ consensus estimate of $1.81 per share.

Cisco stock rose 0.1% in pre-market today at 6:26 AM ET. The S&P 500 futures fell 0.67%, while the Dow futures fell 0.63%. Read US Stock Markets: What Are Bears Up Against? and US Stock Markets: Should You ‘Sell’ or ‘Buy’ in May? to learn more.

Stay tuned to learn how Cisco performed in the third quarter of fiscal 2020.

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