Cisco Reigns As King Of The Internet Into Earnings

Summary

• Falling revenue during the last three quarters overshadows earnings growth.
• Partnership with NetApp will come under margin pressure as competition for cloud services heats up.
• Cisco's lower price means a higher net effective yield for dividend seekers.

Background: Cisco) designs, manufactures and sells IP and other products related to the communications and information technology industry. For most web requests, it's a virtual certainty that the 0s and 1s passed through a Cisco device before reaching your computer.

Wall Street and investors are planning on more of the same in the upcoming fourth quarter earnings report after the market closes on August 13, 2014. The consensus opinion is presently 53 cents a share, a slight improvement of 1 cent over 52 cents during the corresponding period last year.

Estimates from analysts range from a low of 51 cents per share, up to the highest estimate of 54 cents per share.The whisper numbers I have examined start at 53 cents and go up to 59 cents. In simple terms, Cisco Systems will need to beat and guide higher to push the share price materially higher. If Cisco Systems can meet or exceed, the earnings will also exceed last quarter. Last quarter sequentially, the company generated profits of 51 cents.

Compared to Cisco's 11.6 forward price-to-earnings ratio, Juniper (NYSE:JNPR) has a P/E of 12.50, and Microsoft (NASDAQ:MSFT) has a P/E of 13.3. While I like Microsoft better (it has been my number one pick for over a year), both Microsoft and Cisco fall into the same category of reliable tech that delivers results year after year.

After Microsoft's strong appreciation during the last couple of years, the dividend yield fell below 3%. Cisco's 76 cents a year dividend, or 3.1% yield is superior, and from that perspective, i.e. as a dividend collecting stock, Cisco wins by a nose, but outside of a pure yield play, Microsoft is my preferred stock due to what I believe is greater growth opportunity.