Lower compensation and SG&A may offset discounting in bundled product offerings as Cisco is seeking more and more of an enterprise’s total technology budget. Our fear is long-term lower margin compression after years and years of being technology’s envy in gross margin.
Cisco is down ahead of earnings but still just above this $20.00 mark against a 52-week trading range of $13.30 to $22.15. Analysts have a consensus target of $21.66, but we just saw one target on Tuesday morning from Credit Suisse at $26.00.
As far as expectations… Thomson Reuters has consensus estimates of $0.43 EPS and $11.23 billion in sales. For the quarter we are already in, the estimates are $0.45 EPS and $11.46 billion in revenues. For the July year-end, the estimates are $1.77 EPS and $45.83 billion in revenues.
Cisco trades at an implied 11.4-times current year earnings estimates, and maybe even a tad less if you factor in the wasted billions used for share buybacks.
Chart analysis is not worth much here today in all honesty. Cisco is at a post-reorganization high and back over $20.00. The 50-day moving average is $18.92 if there is another blow-up, but here are the shorter moving averages… 5-day at $20.08, 10-day at $19.88, and the 20-day is at $19.71.
Options traders appear to only be pricing in a move of up to $0.60 or even a tad less using the monthly options which expire in a week and a half. For whatever this is worth, options traders are much more heavily involved in at-month Call options over Put options with at least a 2.5:1 ratio if you combine weekly and monthly trading volumes.
Cisco has pledged to raise its quarterly dividend of $0.06 ‘in time.’ It has now had four consecutive payments of that rate of $0.06 per share per quarter and that yield comes to only about 1.2% for new investors. Longer-term, that dividend needs to go over 2% if it wants to entice income-oriented investors. It is possible that we will get a dividend hike. If not this quarter, we expect one soon.
JON C. OGG
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