Cisco Systems Inc (NASDAQ: CSCO) is poised to report its Q3 FY’23 results on May 17. We expect revenue for the quarter to come in at about $14.45 billion, coming in slightly ahead of estimates and rising by about 12% versus last year. We project that earnings will stand at about $0.98 per share, coming in marginally ahead of consensus estimates. So what are some of the trends that are likely to drive the company’s results for the quarter? See our analysis on Cisco Earnings Preview for a closer look at what to expect when Cisco publishes results.
We expect Cisco’s revenues for the quarter to expand, driven by easing supply chain constraints which are helping the company to clear its backlog for its networking products. Gross margins could also see a slight improvement, driven by easing inflation and improved supply. Over Q2 2023, the company indicated that new orders have also been strong, noting that it saw double-digit sequential order growth from the commercial and enterprise space, with demand from the public sector also rising. Cisco is also likely to remain a key beneficiary of rising spending on cloud computing. Cisco has been increasingly pushing toward a recurring revenue model with its software subscriptions and services contracts, and we will be tracking the company’s performance on this front. Over the last quarter, total annualized recurring revenue stood at $23.3 billion, up 6% year over year.
So, is Cisco stock undervalued at the current market price of about $47 per share? We think it is. The stock trades at just about 12x consensus earnings for FY’23. We think this is a reasonable valuation, considering that sales are projected to grow by near double-digits in the near term. Moreover, we think that the company will perform better than its big tech peers in the event of a potential economic downturn given the secular spending trends on digitization and networking. We value CSCO stock at about $59 per share, which is almost 25% ahead of the current market price. See our analysis of Cisco Valuation for a closer look at what’s driving our price estimate for the stock. Also, check out our analysis of Cisco Revenue for more details on the company’s key revenue streams.
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