Cisco (CSCO) is scheduled to report results of its fiscal first quarter after the market close on Wednesday, November 13, with a conference call scheduled for 4:30 pm ET. What to watch for:
1. GUIDANCE: Along with its last report, Cisco guided for Q1 adjusted earnings per share in the range of 80c-82c on year-over-year revenue growth of 0%-2%. At the time, analysts were expecting the company to report Q1 EPS of 83c on revenue of $13.4B, but those figures have since fallen to 81c and $13.09B, respectively.
2. M&A: Cisco has been fairly active around mergers and acquisitions over the past three months. Since announcing its proposed acquisition of Acacia Communications (ACIA) over last July, the company has said it anticipates the deal closing in the second half of fiscal 2020, and earlier this week Acacia said it has received regulatory clearance from the German Federal Cartel Office for the takeover. Meanwhile, Cisco completed acquisitions of customer experience management company CloudCherry and Voicea, creator of a real-time solution that provides meeting transcription, voice search, and meeting highlights/action items, with robust data privacy. Financial details were not disclosed for either transaction. In addition, Bloomberg reported in mid-September that Cisco had approached Datadog (DDOG) with an acquisition bid significantly higher than the $7B valuation it was seeking in its initial public offering, though the company rebuffed the advance. Datadog went public a few days later, closing in its first day of trading at $36.15 after raising $648M in its IPO.
3. PIPER DOWNGRADE: Earlier this week, Piper Jaffray analyst James Fish downgraded Cisco to Neutral from Overweight and cut his price target on the shares to $51 from $55, citing a slowing macro environment across Enterprise and Service Provider, cycles hitting a peak earlier this year, a lack of a near-term catalyst, and risk to fiscal 2020 and 2021 estimates for the downgrade. Fish added, however, that he sees share downside as "fairly limited from here," with the company's software transition producing better free cash flow, its 3% divided yield, and "material 2021 catalysts" like 5G and 400G switching. The analyst added that he just sees better opportunities for outperformance in other parts of his coverage.
4. IDC FORECAST: In late September, International Data Corporation stated that vendor revenue from sales of IT infrastructure products - including server, enterprise storage, and Ethernet switch - for cloud environments, including public and private cloud, declined 10.2% year over year in the second quarter of 2019, reaching $14.1B. IDC also lowered its forecast at the time for total spending on cloud IT infrastructure in 2019 to $63.6B, down 4.9% from last quarter's forecast and changing from expected growth to a year-over-year decline of 2.1%.
