Quarterly earnings expected Wednesday from Cisco (NasdaqGS: CSCO) will set the tone in exchange traded funds tracking technology and Nasdaq-listed stocks the rest of the week.
Cisco is slated to announce fiscal third-quarter results after the closing bell. Wall Street analysts are looking for earnings of 37 cents a share, on average.
“We suggest that investors who are able to stomach the risks inherent in a company that is restructuring its operations and has pockets of weak demand consider buying ahead of earnings,” said BGC Partners, which initiated coverage of Cisco this week. The analysts have a buy rating and a 12-month price target of $24 on the stock, representing 36% upside.
“We expect to see Cisco exhibit tighter control of its operating expenses while its gross margins grow out of the recent trough caused by new products,” BGC added.
Cisco shares have climbed above their 50-day moving average, a key technical level.
Analysts at Wunderlich Securities trimmed their longer-term growth forecasts for Cisco, however, ahead of the earnings report.
“We believe recent restructuring announcements reflect management awareness of an increasingly competitive environment that mandates focus and enhanced productivity,” said the analysts, who have a hold rating on the stock. “We believe the industry is evolving with replacement opportunities that will result in overall growth, but with more competition and less market share for Cisco.”
Deutsche Bank also rates the stock a hold. “We think the company will report results better than many fear, but still believe the long term outlook remains challenging,” it said in a preview.
“We think the company has also shed costs in the last two quarters which should help margins,” Deutsche Bank analysts wrote. “Despite this the company still faces considerable uncertainty in some of their core markets.”
Cisco is a top holding in tech ETFs such as iShares Dow Jones US Technology (NYSEArca: IYW), where it accounts for about 4% of the portfolio. It also represents about 4% of PowerShares QQQ (NasdaqGM: QQQ), an ETF tracking the Nasdaq-100 Index.
iShares Dow Jones US Technology