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Cisco Should Post Strong Earnings. Wall Street Is Worried About Big-Picture Issues.

Barclays analyst Tim Long says order growth at Cisco is likely to slow down.

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Wall Street is optimistic about Cisco Systems’ quarterly results, due after the close of trading Wednesday, but concerns remain about how the networking giant’s outlook might be affected by difficult macroeconomic conditions.

For the quarter ended in April, Cisco (ticker: CSCO) has projected revenue growth of 3% to 5%, with non-GAAP profits of 85 to 87 cents a share. The Street consensus is for revenue of $13.4 billion, up 4.4%, with profits of 86 cents, in the middle of the target range.

For the July quarter, the Street consensus is that revenue will be $13.9 billion, which would be up nearly 6%, with profits of 92 cents a share. Cisco has projected that revenue for the July 2022 fiscal year will be up by between 5.5% and 6.5%, with non-GAAP profits of $3.41 to $3.56 share.

Barclays analyst Tim Long said in a research note previewing the results that Wall Street is too negative about the stock. He sees Cisco as a market-share gainer in networking gear for cloud-computing providers.

But Long and other analysts note that there is likely to be scrutiny of the company’s progress on orders, which have grown in the 31% to 33% range for each of the past three quarters. Long’s financial model points to order growth declining to 20% in the quarter.

“We see valuation as attractive, and are positive around a networking industry recovery, share gains in the cloud vertical, and increased software content,” Long wrote. He kept an Overweight rating on the stock, with a price target of $68.

The shares closed Tuesday at $50.60, up 3.3%, leaving the price down 20% so far this year.

J.P. Morgan analyst Samik Chatterjee is similarly upbeat about the quarter and the long-term outlook. He sees two primary questions. One is whether the company can continue to report outsize gains in customer orders; the other is whether Cisco needs to reduce gross margin expectations in the face of higher costs.

He said he sees no sign of a macro-related order slowdown, saying Cisco should be able to turn in revenue at the high end of the range it has forecast for the year. And Chatterjee thinks the current stock price already reflects some expected pressure on gross margins.

His view is that Cisco offers investors “a favorable risk-reward going into the earnings print.” Chatterjee has an Overweight rating and $67 target on Cisco shares.

Evercore ISI analyst Amit Daryanani this week reiterated a Outperform rating on Cisco shares, but trimmed his target price to $62, from $67. His view is that while Cisco appears well positioned to deliver a better April quarter than Wall Street expects, the July quarter appears more challenging.

“The key potential upside driver will be pricing as our channel checks indicate Cisco has been more aggressive in raising list prices relative to their competitors,” Daryanani wrote. “The question will be: are these price increases reflective of what customers are actually paying or is Cisco offering discounts off list price to drive growth?”

Write to Eric J. Savitz at [email protected]

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