Tag Archives: csco

Cisco Upgraded As JPMorgan Firms Up Q3’s 14th Week Sales Estimate

With a 14th week in its current third fiscal quarter and apparently enough momentum to hit 2016 consensus even if its switching business continues to weaken, Cisco Systems ( CSCO ) earned an upgrade from JPMorgan Wednesday. JPMorgan analyst Rod Hall used a proprietary statistical model suggesting “limited downside” for the world’s most essential computer networking gear maker, assuming 2.5% global GDP growth in 2016. The model predicts calendar 2016 revenue of $49.1 billion, in line with consensus, Hall said in a research note to investors. The prediction helped him upgrade Cisco stock to neutral from underweight, and raise its price target to 27.50 from 17. Already ahead of his target by eight cents by the time the market closed Tuesday, Cisco stock responded early by jumping 1.2% by midday to 27.91 in the stock market today , putting it within 6% of a 29.90 high hit May 18 and 7.8% below an eight-year high set March 2, 2015. Among Cisco’s most aggressive rivals, Juniper Networks ’ ( JNPR ) stock was up 1% to 25.48 by midday Wednesday. That 14th week for the quarter and 53rd week for the year happens every sixth year or so for some companies that normally count 13-week quarters, a source of confusion for some investors that is “now famous,” Hall noted. He said that Cisco “cautiously guided revenue” for the 14th week, and Wall Street analyst consensus acknowledges that midpoint scenario, but JPMorgan’s estimates “adjusts for this.” “We believe this not only sets Cisco up to beat expectations in fiscal (Q3) but to guide well for (Q4),” he said. For Cisco’s switching gear, JPMorgan is modeling “conservative campus and data center port share and ASPs (application service providers), but this is offset by better routing and security growth,” Hall said, assuming that better Chinese and Indian acceleration will offset slower U.S. growth. Analysts polled by Thomson Reuters estimate EPS of 55 cents minus items for the current Q3 ending April 30, up 2% from a year earlier, on slipping revenue to $11.976 billion, down 1.3% from $12.137 billion in the year-earlier quarter. Hall revised his adjusted Q3 EPS estimate up a penny to 58 cents, his full fiscal 2016 EPS estimate up two cents to $2.31 and his full fiscal-year revenue model up by $139 million to $49.284 billion. “We continue to see commoditization as a major challenge for Cisco’s switching business,” Hall said. “However, we believe impacts are likely to remain muted in 2016 with the potential to increase in 2017 as private and public cloud adoption accelerate.” While his upgraded neutral rating on Cisco doesn’t sound like a robust endorsement, Hall sees investors “getting paid to hold.” “Cisco’s current dividend yield of 3.8% places it among the top dividend-yielding large-cap value names in the S&P 500 after a surprise 24% dividend increase on Feb. 10,” he said. “We see this highly dependable cash return as a critical supporting factor for the stock in the midst of current market volatility and believe the company has the firepower to further increase should they wish to do so.” Image provided by Shutterstock .

Palo Alto Networks Falls After Analyst Day As Price Targets Change

Palo Alto Networks ( PANW ) hosted an upbeat Analysts Day at its Ignite 2016 cybersecurity conference in Las Vegas Monday, but the stock erased weeks of gain Tuesday. It’s still up 39% from a low point on Feb. 8. The biggest pure-play computer network security company fell 6% to 151.92 in the stock market today . The drop reflected its worst day since a 7.2% slide on Feb. 18 in the throes of the January-February software sag of 2016. Palo Alto Networks stock is now trading 24% off its record high, set July 24 at 200.55. It went public priced at 42 in July 2012. The market was down Tuesday, but none of the major U.S. indexes was off more than 1% at midday, while Palo Alto Networks became the topic of a slew of analyst reports issued after Monday’s big show. Let’s go to the tape: Needham’s analyst raised a price target on Palo Alto to 187 from 171, affirming its buy rating. Goldman Sachs trimmed a price target to 188 from 191. Pacific Crest’s analyst assured, “The party is still getting started.” Credit Suisse’s analyst noted: “The company anticipates being able to sustain this level of revenue growth (over 30% in 2017 and beyond) and operating profile (35%-45% free cash flow and 100-200 basis points of operating margin expansion by 2017) for several years.” William Blair’s Jonathan Ho “came away with a stronger appreciation for the company’s … opportunity to ultimately become the largest player in the cybersecurity space,” he said in a research note issued Tuesday. Let’s do the math: If computer networking behemoth Cisco Systems ( CSCO ), which is growing its cloud-related services much faster than its traditional on-premise products, were able to sustain its fiscal 2015 growth rate for security services — up 12% to $1.747 billion, or 88% more than Palo Alto’s entire $928 million in 2015 sales — Palo Alto’s estimated 30%-plus growth rate by 2017 suggests that it would overtake Cisco’s security sales sometime in fiscal 2019, something like $3.05 billion vs. $2.74 billion in projected Cisco security revenue. But who’s counting? The analysts are. “We continue to believe investors are underestimating how large Palo Alto will ultimately be, particularly given that most of its revenue is still derived from competitive displacements, as opposed to a refresh of its captive installed base (which has only recently modestly begun),” said William Blair’s Ho. “Our industry discussions suggest Palo Alto continues to dominate next-generation firewall win rates and is still in the relatively early phases of a market undergoing significant transition. Furthermore, increasing traction in (Palo Alto products) WildFire, Traps, Aperture and AutoFocus could create opportunities in new markets for the company to broaden its platform reach. As a result, we would continue to be buyers of the stock, particularly given its recent pullback.” Given Tuesday’s slide in Palo Alto stock, Pacific Crest analyst Rob Owens’ take on Palo Alto seems even more the case: “Palo Alto Networks is our top pick in security,” he said in a late Monday research note. “It is rapidly gaining share against competitors, trades at a discount to comparable-growth companies and has potential upside drivers from new subscription services.” He affirmed Pac Crest’s 190 price target with an outperform rating. Palo Alto gets an IBD Composite Rating of 82 out of a possible 99, factoring in its earnings track record, stock performance and other measures.

Apple Earnings Quality Better Due To GAAP-Only Reporting, Says UBS

Apple ( AAPL ), IBM, and Cisco Systems ( CSCO ) have higher earnings quality than some 3D printer makers, based on their GAAP vs. non-GAAP accounting, says UBS. Tech companies, and some others, typically report both non-GAAP earnings — which exclude stock options grants to employees and often other items — and earnings under GAAP (generally accepted accounted principles), which include everything. Financial analysts typically provide non-GAAP estimates for quarterly results, and those numbers frequently get more play in quarterly earnings stories in the business press. “Non-tech investors sometimes recoil at the liberal non-GAAP reporting by tech companies and its acceptance by investors,” noted UBS analyst Steven Milunovich in the research report. Milunovich says a large difference between GAAP and non-GAAP earnings should be taken into account in assessing a stock’s price-to-earnings, or P/E, ratios. “Apple’s financial statements embody the same user-friendly nature as its products in only reporting GAAP numbers,” he wrote. Milunovich also said the GAAP to non-GAAP EPS difference for IBM ( IBM ) is just “modest,” and is a “relatively conservative” 12% for Cisco. IBM is slated to report its Q1 earnings on April 18, and Apple on April 25. IBM stock fell 0.3% to 152.07 on the stock market today. Apple rose 1% to 111.12, closing just below Apple’s 200-day line after the stock topped that key level intraday for the first time in 2016. Milunovich is the second tech analyst in a week to take a close look at GAAP vs. non-GAAP earnings. Citigroup analyst Mark May last week slashed his price target on LinkedIn ( LNKD ) and also lowered its targets on shares of Amazon.com ( AMZN ), Alphabet ( GOOGL ), Facebook ( FB ) and Netflix ( NFLX ) in a report that examined the earnings dilution from stock compensation grants . Milunovich says restructuring charges also impact GAAP vs. non-GAAP accounting. The UBS analysts flagged the leading makers of 3D printers. He said that in 2015 “both Stratasys ( SSYS ) and 3D Systems ( DDD ) had large impairments, especially Stratasys’ write-off of MakerBot, creating the biggest gaps (in GAAP vs. non-GAAP accounting)” among the companies he looked at. Storage vendors including Nimble ( NMBL ), NetApp ( NTAP ) and EMC ( EMC ) also had relatively large differences in GAAP vs. non-GAAP earnings, he wrote.