Cisco Systems Earnings: Will Investments Restore Growth?

Cisco System (CSCO.US), an American company specializing in providing network infrastructure, will release its earnings for the past quarter after the close of Wednesday's session on Wall Street. Investors will be primarily interested in whether recent investments will help the company break the streak of disappointing growth rates (or essentially lack thereof).

The company, which was once the largest technological giant in the world, has struggled for many years to return to the peak of its valuations. Today's results will not change the company's situation, but recently there have been new capital expenditures that, if invested wisely, could lead to increased revenues in the future.

Cisco Systems: Key Information

• Analysts' consensus sets the expected EPS at 0.97, while expected revenue is 14.62 billion dollars. These figures are within reach for the market giant, despite risks and a business model lagging behind the vanguard of U.S. technology companies.

• The biggest change for CISCO in recent years was the acquisition of the innovative company "Splunk," specializing in cybersecurity solutions. Their investors hope that the absorption of a more dynamic company will strengthen CISCO's market position and translate into further stock price increases.

• The biggest risk for CISCO currently is the potential escalation of the trade war between the U.S. and China, which could significantly impact the company's supply chains. There is also a risk that the company's growth strategy may not yield tangible results in the face of improving competition performance.

• As of today, the company boasts slow but steady growth and a significant majority of market share in network switches. However, the lack of innovation or competitive AI solutions puts CISCO's long-term dominance in question.

• The company's financial indicators appear conservative compared to most technology companies. The debt-to-equity ratio stands at 66%, and P/BV at 6.2. The price-to-earnings ratio is only 25.6, with a return on equity of 21%.

The company presents solid financial data; however, it's worth noting the decline in annual revenues and the flat change over the last 5 years. In the case of the second chart, it's particularly important to notice that net profit is decreasing, which indicates a reduction in the company's margin. The company significantly increased its debt in 2024, but has clearly been reducing it since then. The decline in the ROIC indicator is also concerning, although the recent increase in CAPEX potentially indicates an intention to boost revenues and profits in the future.

Source: Bloomberg Finance LP, XTB

Compared to other technology companies, the Forward PE ratio remains at a moderate level, although it is simultaneously at an extremely low level. If the company manages to increase its margins or boost profits through revenue growth, the lower Forward PE ratio may encourage a positive outlook towards this company.
Source: Bloomberg Finance LP, XTB

CSCO.US (D1)

Cisco's stock price is maintaining a long and wide upward trend channel, currently situated near its upper boundary. Bloomberg's valuation consensus ranges from $70 to $80 per share, which aligns with the situation on the chart. Positive surprises during the earnings conference may help break out from the top of the current upward channel. However, if the results do not meet expectations, we might expect a test of support at the levels of previous peaks from February 2025, around $66 per share. Additional support could come from the EMA100 and EMA200 averages, which the current price is still quite far from. The RSI is just below the overbought level, which may provide additional impetus for sellers in the event of a negative reception of the results.

Source: xStation5