What to Expect From Tomorrow's Cisco Earnings

Cisco Systems (CSCO 0.67%) is scheduled to release its quarterly earnings report tomorrow, and investors have been pleased with the company's long-term turnaround story, sending the stock to levels not seen since early 2010. Given expectations for continued slow but solid growth in Cisco's earnings, investors will want to see recent signs of strength elsewhere in the networking sector as well.

Cisco is one of the most recent additions to the ranks of the Dow Jones Industrials (^DJI 0.06%), having joined the average in 2009 in the wake of the General Motors bankruptcy. In the increasingly integrated world of information technology, Cisco has been trying to use its networking prowess to provide a wider range of products and services to meet more of its clients' overall IT needs. With rivals following the same course, though, an all-out tech war could be on the horizon. Let's take an early look at what's been happening with Cisco Systems over the past quarter and what we're likely to see in its quarterly report.

Stats on Cisco Systems

Source: Yahoo! Finance.

How far can this quarter's Cisco earnings grow?
Analysts have held their views on Cisco's earnings relatively stable lately, with no changes to their July quarter estimates. But they've been a bit more optimistic about the company's long-term prospects, raising their fiscal-2014 projections by $0.02 per share. The stock has soared, jumping more than 27% just since early May.

Cisco gave investors a nice surprise to start things off, with its April-quarter results coming in particularly strong despite fears from elsewhere in the industry that overall conditions would hurt its results. With CEO John Chambers focusing on blending cloud-computing, mobile devices, and video communications into a unified business approach guiding Cisco's product development, the company was able to overcome poor results from its rivals. It also produced plentiful cash flow, much of which it put to work repurchasing shares.

The key to Cisco's strategic vision is wrapped up in its "Internet of Everything" concept, in which connectivity expands to all facets of life. Fellow Dow component General Electric (GE -1.75%) has put forth its own idea of the industrial Internet that involves companies getting data from its machines in the field and taking efficiency-enhancing actions to respond to that data. But Cisco expects to take things even further, building connectivity into business processes themselves and allowing for updated information to guide decision-making both at the strategic level and in day-to-day operations.

Cisco has also been smarter about strategic acquisitions. The company bought network security specialist Sourcefire (FIRE.DL) for $2.7 billion, enhancing its position in what has become an essential component of the connectivity business. If Cisco wants to re-emphasize its focus on core enterprise networking, then enabling customers to secure their valuable data is a key part of attracting new business.

In tomorrow's Cisco earnings report, watch to see whether the company can sustain its positive momentum. As industry conditions appear to improve, Cisco needs to reap more than its fair share of new business if it wants to keep its stock moving in the right direction.

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