Why Cisco Systems, Inc. (CSCO) Is a Solid Play Ahead of Earnings

To that end, Cisco has partnered with virtualization/cloud giant Citrix Systems, Inc. (NASDAQ:CTXS), a move that caught many investors off-guard. For that matter, it also surprised F5 Networks, Inc. (NASDAQ:FFIV) and VMware, Inc. (NYSE:VMW), rivals of both companies. But it was a brilliant move because it supports Cisco’s recent acquisitions, which included nine cloud-based companies last year. Citrix makes a solid partner because Citrix can also rely on Cisco’s enterprise dominance in hardware.

With the two companies coming together, they are able to leverage each other’s strengths. Combined, their customers can enjoy the best of both worlds, while also lowering costs.These customers will now be able to squeeze more performance out of their existing hardware since they will be running virtual operating systems on top of a data center. Plus, this relationship allows Cisco the time it needs to synergize its existing cloud deals for Meraki and Cariden.

In the meantime, it forces the hand of Juniper and F5 to look for similar deals with VMware and possibly Red Hat, Inc. (NYSE:RHT). I can’t envision a scenario where hardware will still be as relevant three to five years from now. By the same token, Citrix is now in a better position than both VMware and Red Hat because Cisco’s dominance is extra leverage that Citrix can use to help grow market share.

Expectations for the quarter
Cisco will report second-quarter results on Wednesday after the market close. The Street is looking for earnings per share to arrive flat at $0.43. Revenue is expected to arrive at $12.06 billion, or just less than 5% growth year over year.

These are relatively conservative targets and Cisco’s string of earnings beats should continue. While I’m not willing to say that Cisco is back to the tech-bubble performance days, the company is certainly not in the doghouse, either. The stock should reach $30 at some point this year, which suggests a 40% premium above current value.

This also takes into account the company’s strong cash flow projections and revenue trends, which include 22% aggregate growth in services, advancing 130 basis points year over year. Likewise, the company has a solid balance sheet, offers a respectable yield, and presents very limited downside risk.

The article Why Cisco Is a Solid Play Ahead of Earnings originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, F5 Networks, and VMware. The Motley Fool owns shares of F5 Networks and VMware.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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