Cisco Systems, Inc. (NASDAQ: CSCO) is set to report earnings after the close of trading today. With the pressure on public spending and with the slowing economy, one has to wonder just how good this company’s first quarter earnings can be. The growing consensus is that the backward looking earnings report will be ok but that the guidance should be soft or full of uncertainty.
Thomson Reuters has estimates of $0.46 EPS and $11.79 billion in revenue. With the coming fiscal cliff impacting government spending by so much, we expect Cisco to offer a wider range for its guidance ahead and we also expect that many caveats will be included along the lines of how unpredictable the spending cuts may be on equipment. Thomson Reuters has estimates for the second quarter ending in January 2013 as $0.48 EPS and $12.07 billion in revenue.
J.P. Morgan downgraded Cisco just last Friday and that rating was cut to Neutral from Overweight. The current price of $16.82 compares to a 52-week range of $14.96 to $21.30. We have also seen some growing caution from RBC and MKM Partners without any formal ratings changes. The consensus price target from Thomson Reuters is already lower than what we saw on Friday as the current price target is $21.53. We would warn that this upside target may still be a bit ambitious as this mean target is above its 52-week high.
On the charts it needs to be addressed that Cisco’s 50-day moving average is $18.36 and the 200-day moving average is $18.22.
Based in the current month put and call options, our calculation is that options traders are braced for a move of about $0.65 or so in either direction.
As far as a chart reading, we already gave the overhang above via the 50-day and 200-day moving averages. More recently, the stock has been using the current $16.75 to $16.80 as support and there is a larger resistance up at about $17.50. If the trading levels going back to summer hold any bearing, there could literally be nothing but dead air down to $16.00 or $15.75 if the news is deemed negatively. If the news is somehow far worse than what we have expected then much more firm support would likely be down around $15.00, just above its 52-week low.
Now that Cisco has seen its share price get hit along with other tech giants the dividend is yielding 3.3% for its common stock.
JON C. OGG