Previewing Cisco's Q4 Results: Deutsche Bank Is Bullish Into 2018

Previewing Cisco Systems, Inc. (NASDAQ: CSCO)'s fiscal-year fourth quarter results, Deutsche Bank said it is bullish on the networking giant into 2018.

The firm feels the fundamental story is likely to be driven mainly by Cisco capturing new higher margin opex IT dollars in the Software Transformation of IT, as it leverages its $250 billion+ installed base footprint.

Analyst Vijay Bhagavath expects Cisco Systems to report July quarter earnings of 60 cents per share on revenues of $12.10 billion. This compares to the consensus estimates, which call for earnings of 61 cents per share on revenues of $12.07 billion.

For the October quarter, Deutsche Bank expects earnings per share of 61 cents on revenues of $12.32 billion Vs consensus expectations of 60 cents per share in earnings and $12.06 billion in revenues.

The firm premised the positive preview on the findings from its primary research with the enterprise, cloud and service provider IT channel. Outlining the findings, the firm said U.S. public sector order trends have been improving, especially the IT spending by the U.S. Fed.

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The firm also noted that U.S. Enterprise demand for the new Catalyst 9k Campus Switch and "intent based" software, 100G Nexus data center switching and the next gen security portfolio all have been stronger than expected.

Additionally, there has been double-digit order momentum for the company's analytics, automation, IoT and cloud-based network management portfolio, the firm said.

Even as the EMEA region and emerging markets, excluding India, are seeing continuing IT spending weakness, near term, the firm said enterprise IT spending trends on network Infra refresh at Fortune 500 U.S. corporates, commercial enterprise, etc. have seen improvement.

"CSCO capturing a new pool of opex IT dollars is a 'positive sum game,' in our view, driving longer-term Free Cash Flow Growth and Visibility for CSCO — versus a 'zero sum game' — i.e. a bear argument that IT is mostly reallocating network infra spending between 'capex' and 'opex,'" the firm said.

As such, Deutsche Bank maintains its Buy rating and $40 price target on the shares of Cisco Systems.

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