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Cisco pre-tax profits set to jump

Markets are waiting to see if Cisco can maintain its ability to outperform expectations.

Cisco sign
Source: Bloomberg

On Wednesday 12 November Cisco Systems will post its first-quarter figures. The markets are expecting the adjusted earnings per share to drop from $0.55 down to $0.525, sales are also forecast to drift from $12.357 billion to $12.159 billion. Most importantly, the pre-tax profits are expected to shoot higher from $2.778 billion up to $3.47 billion. When looking at how Cisco’s quarterly figures have performed, we have to go back to 2005 when it last failed to beat expectations.

Cisco’s position as one of the industry’s biggest communication and information networks has seen the company change its model. There has been a shift away from selling individual products to selling one of four bundled packages. This has seen the company’s perceived flexibility dented, but improved cross-selling. One problem that investors will have is that year-on-year the company’s EPS has failed to grow even though the share price is now almost 9.2% higher.

In contrast to the pharmaceutical sector Cisco’s counterparts, such as Hewlett-Packard and eBay, have either split or asset-stripped; Forbes has questioned if this might not be this best thing for the company. Considering how it has, for some time, been regarded as over complicated, this is an idea that might gain traction with some investors.

Even with the shares trading as high as $25.20, institutional analysts are still calling for more, and 60% still have buy recommendations on the stock even with the 9.2% increase over the last 12 months. If these first-quarter figures come in as expected, this might be the catalyst to see the shares challenge the $26 level.

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