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Article / 07 August 2015 at 10:00 GMT

Earnings Watch: Cisco to benefit from upgrade cycle

  • CIsco, Nestle and Kraft Heinz among next week's bluechips
  • Analysts favour Kraft Heinz with buy/hold recommendations
  • Cisco share treads water despite expected earnings uptick

By Mads Koefoed

Following several hectic weeks filled to the brim with company announcements – including Walt Disney which despite beating expectations on EPS offered a cautious outlook and the stock sold off as a result – we shift down a bit in gears next week as "only" 85 companies in the S&P Global 1200 index will report earnings. But there are still some some large companies worth keeping an eye out for including Cisco, Nestle, and Kraft Heinz.

Kraft Heinz (Q2, August 10, after market): In Q2 Heinz completed its purchase of Kraft Foods thereby creating a global player in the food and beverages industry while Warren Buffett has joined the board. The new stock has begun trading amid a string of buy and hold recommendations (eight and seven respectively) while just one analyst has a sell recommendation. Analysts look for the company to present Q2 revenue of $4.7 billion and earnings per share (EPS) of $0.84 on a diluted basis (excluding abnormal items).

Cisco (Q4, August 12, after market): The IT giant, Cisco, based in San Jose, California, has seen its stock do practically nothing so far this year, trading close to $28 at all times. This is quite interesting considering that Cisco is expected to increase its earnings by enough to push down the P/E multiple from 16.1 to 13. The company is well placed to benefit from the upcoming upgrade cycle in WLAN.

Analysts see upside potential of 14%  targeting a share price of $32.1 on average, and Cisco is expected to present Q4 earnings of $0.56 (27% y/y) on revenue of $12.66 billion (2.4% y/y). The strong US dollar has impacted many companies' Q2 reports but while Cisco will be affected too, a large majority of its pricing is in USD so the headwind should be minimal.

Nestle (H1, August 13): Swiss packaged food behemoth Nestle will present H1 results which are expected to include  sales of around CHF 43.2 billion (+0.5% y/y) and earnings of CHF 1.54 per share, which translates into a gain of 6.2% from 1H'14. Analysts are not too keen on the stock with a limited upside seen at 2.8% over the next twelve months with 18 of 37 analysts having a hold recommendation. The deflationary environment in some of Nestle's key markets puts downward pressure on the company's pricing power and there is also a risk from FX movements (in both directions, of course.).

KAraftHeinz
 The merger is complete, Buffet is on board and analysts are lovin' it. Image: Kraft Heinz

– Edited by Clare MacCarthy
Mads Koefoed is head of macro strategy at Saxo Bank

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