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 .