Can the Cisco share price continue growth after earnings?

In 2021 to 13 August, the Cisco Systems [CSCO] share price gained 29%, closing at $56.39. A slow start to the year was followed by rapid gains in early February, which saw the Cisco share price close 8 February at $48.94, 9.78% above its 29 January close of $44.58, before quickly tailing off to close 4 March at $44.56.

Rapid gains followed, with the Cisco share price closing 26 March at $52.57, 20% up for the year. The Cisco share price gradually gained a further 4.68% by 10 June to close at $55.03, 25.7% up for the year, before losing 5.38% in a quick time to close on 18 June at $52.07. Since then, the Cisco share price has been on a consistently upwards trajectory, closing 12 August 17.23% above its level 12 months previously. 

13 August 2020 saw a fall of 11.19% in a single day – and the Cisco share price hadn’t hit this level by 1 January 2021, hence the lower 12-month gains compared to its performance year-to-date. The drop followed hot on the heels of the company’s Q4 fiscal 2020 earnings report, so investors will be hoping for a better showing this time around.

Network growth

Cisco Systems’s earnings report for the fourth quarter of its fiscal year 2021 is expected after markets close on 18 August.

If Zacks forecasts are accurate, the report will show 7.28% sales growth year-over-year, to $13.04bn. According to the Zacks panel, the reported figure could in fact be anywhere between $13.00bn and $13.10bn. CNN Money’s panel is more pessimistic, with estimates ranging from $12.9bn to $13.2bn and a consensus estimate of $13.0bn. 

Earnings per share are expected to build slightly on the $0.80 reported this time last year, with Zacks analysts’ consensus estimate at $0.83, 3.75% up year-over-year, with estimates ranging from $0.81 to $0.84. CNN Money’s panel yields the same consensus estimate with a much wider range of estimates, from $0.81 on the low end to $0.89 in the most optimistic case. If realised, this latter figure would mark an 11.25% EPS increase year-over-year.

Should these consensus estimates prove accurate, EPS would be unchanged following the previous quarter, when $0.83 was also announced. On the sales front, even CNN’s most pessimistic estimate would see sales increasing 0.76% from the $12.80bn announced last quarter.

Last quarter’s earnings report prompted a 0.72% uptick in the Cisco share price on 20 May, the day after it was announced, with reported earrings exceeding analyst expectations by 1.22%, according to Zacks. Cisco investors will hope that the upcoming report will contain similar positive surprises.

The fact that sales growth is set to outpace earnings, suggesting the business’ margins have fallen over the past year, will be cause for concern for Cisco employees who have come to expect widespread layoffs in the summer, following the earnings report. In 2020 this saw 3,500 employees, 4% of its global workforce, face redundancy. 

The upheaval is part of Cisco’s ongoing efforts to rebrand itself as a software-first company. To this end, Cisco has recently finalised the acquisition of Israeli software-as-a-service (SaaS) automated monitoring developer Epsagon, for a fee of $500m. 13 August – the day news of the acquisition broke – saw the Cisco share price gain as much as 0.36% inside the first hour, to close even higher than the previous day’s levels.

Cloud comms

The Cisco share price has outperformed the telecoms space on the whole during 2021 to date. The iShares US Telecommunications ETF [IYZ] gained 14.05% in the year to 13 August. As of this date, Cisco is the fund’s top holding, with a 23.86% weighting, so it’s safe to assume the Cisco share price is driving much of the fund’s performance.