By Brendan Gilmartin
Cisco Systems (CSCO) is slated to report 2Q 2012 earnings after the close of trading on Wednesday, February 8. The results are typically available at 4:05 p.m. EST and will follow with a conference call at 4:30 p.m. Given its size and influence, Cisco has the potential to impact the broader market gauges, including the index futures and large-scale ETFs.
Outliers & Strategy
- Cisco typically provides a value for Non-GAAP Earnings Per Share that is comparable to consensus views. In the previous conference call, Cisco targeted Non-GAAP EPS is expected to range from $0.42 to $0.44 per share. The current consensus is $0.43 (Source: Yahoo Finance).
- Revenues are the next most important measure for Cisco. Cisco previously said it expects 2Q 2012 revenues to increase 7% to 8% year over year. Based on the 2Q 2011 revenue figure of $10.4 bln, the projected range would equate to $11.128 BLN to $11.232 BLN. The consensus is $11.23 bln.
- Sympathy Plays: Juniper Networks (NYSE:JNPR), F5 Networks (NASDAQ:FFIV), Radvision (NASDAQ:RVSN) Cavium (NASDAQ:CAVM).
- Cisco continues to aggressively repurchase shares. At the end of the 1Q period, Cisco reported the remaining approved amount of stock repurchase under its existing program was approximately $8.7 billion.
- Cisco is trading at just 10.3x forward earnings and 2.5x trailing sales, a discount to the 5-year average of 3.2x.
- 02/03: Stifel Nicolaus reiterated a Buy rating and raised the price target on Cisco Systems from $20 to $23, based on expectations for a strong January quarter, according to a post on Benzinga.com.
- 01/24: Auriga Securities reiterated a Buy rating on Cisco and raised the price target from $22 to $24, according to a post on Barron's.com. The firm also raised FY2012 & 2013 earnings and revenue estimates, citing increased market share gains.
- 01/03: JP Morgan upgraded Cisco from Neutral to Overweight and raised the price target from $19 to $21, according to a post on TheStreet.com. The firm reportedly believes the margin pressures experienced in 2011 are expected to abate in 2012. The company is also seen benefiting from increased federal budgets.
- 12/15: Cisco announced its Board of Directors declared a quarterly dividend of $0.06 per common share.
- 12/01: MKM Partners told clients that checks for networking equipment makers indicate positive order momentum during the month of November. The firm reiterated a Buy rating on Cisco, according to a report on Barron's.com.
Cisco shares are more than 30% from the October lows, en route to the highest level in close to a year. On a positive earnings release, the next level to watch is the 52-week high of $22.02. Initial support is at the 20-Day SMA near $19.50, with downside risk to $19 (just above the 50-Day SMA), followed by $18.50. Note that both the Relative Strength Index (RSI) and MACD have flattened over the past week - an indication the momentum may be waning. (Chart courtesy of StockCharts.com).
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Cisco shares are rallying in anticipation of the 2Q 2012 earnings release, thanks to extensive restructuring efforts over the past several quarters, increased market share, an improving North American macro backdrop, rising federal spending, and strengthening margins. The shares also trade at a reasonable 2.5x sales, while the company continues to repurchase shares. Against this positive backdrop, Cisco shares are vulnerable to any missteps and even the slightest disappointment on earnings or revenues could prove costly, given the 11.5% YTD increase.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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