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All of Tech/Comm Bracing For Cisco Earnings... Dividend Too (CSCO, JNPR, ALU, ORCL)

Cisco Systems, Inc. (NASDAQ: CSCO) is set to report earnings on Wednesday after the closing bell and all companies in telecom and communications will be watching handily.  After a poor earnings report from Oracle Corporation (NASDAQ: ORCL) and after a lack of recovery from Juniper Networks, Inc. (NYSE: JNPR), the bar is set low even though expectations remain hopeful.  Alcatel-Lucent SA (NYSE: ALU) remains under $2.00 per ADR due to its own failed turnaround.

And speaking of turnarounds, this is the second full report after the restructuring efforts have taken effect for Cisco.  It is a leaner company and operating costs (at least compensation in SG&A) should be lower now.  The problem is that Cisco has been wanting to win back much business and to lock out other competitors as it goes after every penny spend of the network (now including datacenters too).  Translation: we just expect longer-term margin compression.

In this last leg of the rally, Cisco is back above $20.00 against a 52-week trading range of $13.30 to $22.15.  Thomson Reuters has consensus estimates of $0.43 EPS and $11.23 billion in sales.  For the quarter we are already in, the estimates are $0.45 EPS and $11.46 billion in revenues.  For the July year-end, the estimates are $1.77 EPS and $45.83 billion in revenues.  In short, Cisco trades at an implied 11.4-times current year earnings estimates.

Cisco unfortunately wastes more money than it should buying back stock and that price level on the buyback plan is probably still just slightly above breakeven.  Analysts have a consensus target of $21.66, but we just saw one target on Tuesday morning from Credit Suisse at $26.00.  Chart and options trading analysis will be made in much more detail on Wednesday ahead of the report.

One last note… Cisco has pledged to raise its quarterly dividend of $0.06 ‘in time.’  It has now had four payments of that rate of $0.06 per share per quarter and that yield comes to only about 1.2% for new investors.  Longer-term, that dividend needs to go over 2% if it wants to entice income-oriented investors.  It is possible that we will get a dividend hike.  If not this quarter, we expect one soon.

JON C. OGG

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