Little good news in Cisco's earnings outlook

Cisco (Nasdaq: CSCO) is set to release its fourth quarter and year-end earnings after the bell on Thursday, and it's likely to be a test for even the stoutest Cisco supporters to continue to stand by the company. Cisco's stock continues to trade below $14.50 and set a new 52-week low at $14.27 as of this morning (of course, over the past week almost all of the tech sector--including competitors Juniper Networks (Nasdaq: JNPR), HP (NYSE: HPQ) and Alcatel-Lucent (NYSE: ALU)--have taken its lumps).

The company has seen its stock tumble from a 52-week peak of $24.87, and analysts are worried the fall could continue, even with decent earnings.

Analysts are predicting a broad range of EPS, from 31 cents to 42 cents, with a consensus of 38 cents for the quarter on sales of $11 billion; the rub, of course, is that 38 cents is 4 cents off the EPS of a year ago. For the year, analysts see $1.60 EPS.

The expectation is that results will be in line with the guidance the company provided, which has been weak.

"While the stock is cheap, it's very early days in the company's restructuring efforts--the company hasn't yet addressed much the restructuring that's necessary in our view," said George Notter of Jefferies & Co. "We expect that there's significant inertia in the business and believe the outlook for the business can still get worse."

In a research note this morning, Jeffries said it expects Cisco's enterprise business to be "decent," and estimated it should make up 60 percent of Cisco's sales for the year.

CEO John Chambers will likely spend a great deal of time on the company's earnings call talking about how it plans to shed $1 billion in expenses over the next year, cuts he promised in May in an effort to bring them in line with revenues.

But he's likely to be pushed, as well, on sales and how the networking giant will cope with increasing competition and price cuts in its core switching gear market, which is, in the eyes of some analysts, in the process of commoditizing.

Last week, Citigroup John Slack warned that Cisco, as it struggles to stop the bleeding, could become "a perpetual restructuring megacap tech story." Adding that until its strategy grows clearer, the stock doesn't work.

For more:
- see this Barron's article
- see this Seeking Alpha article
- see this Benzinga article

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