Will Cisco be Able to Overcome its Stock Chart With Earnings?

UPDATED FOR EARNINGS: Cisco earnings beat expectations, but margin contraction remains a concern.

The Thomson Reuters consensus estimates for Cisco fourth quarter is $0.53 in earnings per share and $12.14 billion in revenues. While Cisco shares have steadily risen in recent months, investors should keep in mind that the consensus revenue figure of $12.14 billion, if hit, would be 2.2% lower from a year ago. Also, the $0.53 in earning per share would be only up a penny from a year ago. Cisco had offered up positive guidance ahead when it last reported earnings, saying revenues would be lower by 1% to 3%.

Estimates for the coming quarter are $0.53 in earnings per share and $12.08 billion in revenues. That represents flat revenues and earnings per share from a year earlier — if it hits.

We noticed that after the last earnings did not signal a continued train wreck at Cisco, many analysts hiked up their price targets immediately after the report. Our Cisco page also shows that more analyst calls have been made since, mostly positive.

One interesting point will be Cisco’s cash balance and stock buybacks. It already has a very high yield for technology stocks at almost 3.1%, but last quarter, it repurchased some 90 million shares of common stock and had some $50.5 billion in cash and cash equivalents.

Another key issue to watch is Cisco’s gross margin. Last quarter, this shrank to 60.7% from 61.5%. Having such a high margin is great, but Cisco’s customers may be able to drive that margin down if they pressure Cisco on pricing.

Cisco shares have performed well since last earnings. The stock was at $22.81 before its last earnings report, and then shares went up to over $24.25 after the report. Now, shares sit at $25.25 with about 48 hours until the company reports again.

The stock chart is at an interesting juncture. It has been hugging the 50-day moving average for most of the last week (that 50-day MA level was $25.05 on Monday), but that was after seven or eight attempts to break above $26 on the chart. That $26 level built in some strong chart resistance level it would seem, so perhaps Cisco has to do better than simply meeting estimates and guiding within expectations to keep investors happy.

Cisco shares have a 52-week range of $20.22 to $26.48, and its consensus price target from analysts is $25.96. The networking and communications equipment giant is valued at almost 17 times trailing earnings, but its valuation for the year ahead is only about 11.5 times expected earnings.