Cisco Systems (CSCO) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
Shares of this seller of routers, switches, software and services have returned +2% over the past month versus the Zacks S&P 500 composite's +2.1% change. The Zacks Computer - Networking industry, to which Cisco belongs, has gained 4% over this period. Now the key question is: Where could the stock be headed in the near term?
While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.
Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Cisco is expected to post earnings of $0.91 per share, indicating a change of +4.6% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
For the current fiscal year, the consensus earnings estimate of $3.65 points to a change of -2.1% from the prior year. Over the last 30 days, this estimate has changed +0.2%.
For the next fiscal year, the consensus earnings estimate of $3.90 indicates a change of +6.9% from what Cisco is expected to report a year ago. Over the past month, the estimate has changed +0.1%.
With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Cisco.