Cisco (CSCO) Q4 Earnings: What to Expect

S.Cisco rabbits (CSCO). The stock is up more than 20% in six months and is up 26% year-to-date, outperforming the S&P 500 index in both ranges. But can the outperformance continue?

The network giant reports the results of the fourth quarter of the financial year 2021 after the closing bell on Wednesday. Investors want to know what it takes to keep Cisco shares on hold. Although the pandemic has actually impacted Cisco’s business by forcing corporate and corporate customers to either postpone orders or suspend projects entirely, the company remains in a strong position to cope with the increasing demand for digital networks for both education – as well as for business purposes.

In addition, recent evidence Acquisitions like the Israeli application monitoring company Epsagon for $ 500 million, Cisco continues to shift its business model more towards software and applications, especially to services that generate high recurring revenues. This follows the completion of the acquisition of Socio Labs and its event technology platform. And thanks in part to its careful cost control, the company has amassed tons of financial strength for further acquisitions or organic expansion.

While the company is certainly on the right track, the pace of transition from hardware to software has even more leeway. And with its stock price still trading at such a cheap valuation combined with its strong dividend yield, now would be time to take a closer look at Cisco for the next 12 to 18 months. But the company wants some assurances on Wednesday that Cisco can quickly switch to new growth companies to offset the decline in sales in the legacy segments.

In the three months through July, Wall Street expects Cisco to make 82 cents per share on revenue of $ 13.02 billion. Compared to the same quarter last year, earnings were 80 cents per share on sales of 12.15 billion US dollars. For the full year, earnings are projected to decline 0.7% year over year to $ 3.20 per share, while full year revenue of $ 49.71 billion would increase approximately 0.8% year over year.

The pace of Cisco’s software transformation is key as the company continues to see revenue declines in its legacy hardware segments, particularly its cyclical routing and switching businesses. Of course, these segments still provide the company with strong cash flow, which made up around 70% of Cisco’s product revenue last fiscal year. There is plenty of reason to be optimistic at the start of this quarter, not just because of the growth in Internet traffic, but also because of the increased spending on cybersecurity.

Cybersecurity was a key growth area for Cisco, resulting in double-digit growth in accrued revenue and higher recurring revenue. In the third quarter, consolidated revenue rose nearly 7% to $ 12.8 billion, demonstrating broad strength, while adjusted earnings per share rose 5% to 83 cents, beating both metrics. The 13% increase in security and 8% service revenue were a big contributor to the beat.

All in all, Cisco’s growth in software and recurring revenue has started to offset weaknesses in its legacy segments. On Wednesday, beyond a sales and bottom line bump, investors will want a strong upside forecast along with an accelerated pace towards software.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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