Next week, on August 7, Cisco Systems (NASDAQ:CSCO) will post earnings for its quarter and fiscal year, and this will be the highlight of tech stocks for the week. Estimates from First Call are $0.35 EPS and $9.29 Billion revenues, but keep in mind that these may change slightly since there are three more trading days. Next quarter estimates are $0.36 EPS and $9.38 Billion in revenues. If we get any fiscal July-2008 targets from the company, estimates are currently $1.55 EPS and $39.7 Billion in revenues. If the company only gives guidance in percentages for fiscal 2008 you would get a static 2008 to 2007 implied 16.5% gain in EPS and a 14% gain in revenues.
Cisco’s shares have held up quite well when you consider the recent market malaise. Shares closed Thursday at $30.13, less than 1% from the highs of its $17.10 to $30.39 trading range over the last 52-weeks. The most important level for the stock would seem to the $30.00 barrier. This is above that level reached in January to February 2004 and the company is now far larger and executing far better. It also has the accumulated businesses of Scientific-Atlanta, Webex, and others under its umbrella. In fiscal 2004 the networking giant posted $22.04 Billion in revenues and it is expected to have roughly $34.75 Billion for this fiscal year (and estimated at $39.7 Billion for 2008). The company has also been retiring stock. So unless there are some more serious cracks forming across communications as a whole, it would seem that the company has a significantly higher base. We’ll see if the market believes the same.
The average price target is now around $32.00 to $33.00 from analysts. Back in January, we ran some forward valuations and the scenario that could give Cisco shares a $34.00 price mid-year. It hasn’t hit that based on the trading range, so now the rest is up to the company. The company just recently announced its increased share buyback plan, which we thought was a bit odd with shares at a multi-year high and it only being two-weeks ahead of earnings. Perhaps John Chambers and crew want to try to create a much higher floor for the stock. We’ll know Tuesday.
It is not fair to use options pricing as an estimate several days ahead of the event with erosion of time value, but as of today it appears that options traders are prepared for the stock to move up to 3% in either direction. That number is likely to change by the time earnings actually get released, and we’ll make an update on that next week. As a reminder, this was also one of Jim Cramer’s TOP PICKS FOR 2007.
Here is a May 8 preview we gave if you want to see any comparisons to then. Shares ended the last quarter under $27.00, so the stock is up about 11% since then.
Jon C. Ogg
August 3, 2007
Jon Ogg can be reached at firstname.lastname@example.org; he does not own securities in the companies he covers.