Cisco Systems, Inc. (CSCO) Expects a Big Earnings Number

Wayne Duggan

Cisco Systems Inc. (Nasdaq: CSCO) investors are hoping to get some love from Cisco this Valentine's Day if the company can repeat last quarter's impressive earnings beat on Feb. 14.

Wall Street analysts are expecting Cisco to get a huge boost from tax reform and demonstrate that its transition to a more software-centric business model is starting to make a meaningful impact on its growth numbers.

[See; 7 of the Best Tech Stocks to Buy for 2018.]

Analysts are projecting Cisco will report earnings per share of 59 cents on revenue of $11.8 billion. Those consensus estimates would represent 3.5 percent and 1.9 percent growth, respectively. Last quarter, Cisco guided for second-quarter revenue growth of between 1 and 3 percent, its first quarterly revenue growth in eight quarters.

Investors and analysts are optimistic Cisco can continue its momentum in 2018, and the stock has more than doubled the return of the Standard & Poor's 500 index in the past six months.

Goldman Sachs analyst Rod Hall says Cisco will be one of the largest under-the-radar winners of tax reform. Hall said Cisco, Microsoft Corp. ( MSFT) and Apple ( AAPL) will get the biggest overall boost from repatriated cash.

[See: 7 of the Best Stocks to Buy for 2018.]

"We expect management to prioritize share repurchases and M&A with the repatriated cash," Hall says. "We see 2018 as a turning point for Cisco as the company moves to grow both revenue and gross profits as the transition to a disaggregated hardware/software model in campus switching gets underway."

GBH Insights head of technology research Daniel Ives anticipates a modest beat from Cisco on Wednesday. Ives says Cisco's January quarter will be "good enough" to please the market, but guidance will be the key.

"While the company has clear challenges given secular headwinds in its traditional sweet spot of switching/routing, we believe Cisco is slowly putting together newer growth engines (e.g. security, SaaS model, Cisco ONE, cloud initiatives) to help lay the groundwork for a stronger bookings growth trajectory in [fiscal 2018 and 2019]," Ives says.

[Read: 5 of the Best Stocks to Buy for February.]

GBH has an "attractive" rating and $45 price target for Cisco. Goldman Sachs has a "buy" rating and $48 target for CSCO stock.

Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.