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Cisco Systems (NASDAQ:CSCO) reports its earnings for the July quarter after the bell on Tuesday, and sales of its networking gear to enterprise customers should help it meet or beat expectations, says A.G. Edwards analyst Aaron Rakers, who says the fourth fiscal quarter is usually Cisco’s strongest quarter in terms of enterprise sales.

It’s less clear where exactly to trade this stock, despite what may be very healthy results next week.

Rakers expects sales to large companies to offset “sluggishness” he’s picked up in other parts of the company’s business. He’s looking for 17% year-over-year revenue growth in the quarter, to $9.31 billion, and notes that that assumes revenue from two acquisitions Cisco recently made, WebEx and IronPort. Those two deals could add an extra $85 million to Cisco’s top line this quarter, but were not counted by Cisco when the company gave a forecast of $9.3 billion, which suggests there’s some upside to Rakers’s and other analysts’ estimates.

Rakers is looking for 35 cents per share in earnings for the quarter — 33 cents including options expenses — and says that he expects double-digit revenue growth going into 2008 of about 13%, for a total of $39.3 billion next year. The fastest area of growth for the company will be the “Advanced Technology Group,” which contains things like network security products. At 25% of sales, it probably will rise 29%, year-over-year, faster than any other Cisco division, though down a bit from the 35% rise in the prior quarter.

Rakers is especially interested to hear what chief executive John Chambers may have to say about new set-top box wins for the company’s Scientific Atlanta group, including any thoughts he may offer on a request for bids that Verizon C0mmunications (NYSE:VZ) has put out for next-generation set-tops that could be worth “billions” to Cisco, Motorola (MOT) or another vendor.

And the trade? Ah, there’s the rub. Despite “impressive execution and a solid/improving long-term growth profile,” the stock is now just about at his 12-month price target of $31 (based on a forward P/E of 18.8x next calendar year’s estimated earnings per share), he notes. And so, “As such, we are closely monitoring our price objective and rating.” Will there be enough upside this week to push up that target, or will it be time to take profits?

Well, here’s another perspective: Susquehanna Financial’s options traders suggest buying implied volatility in Cisco’s options contracts for August, as they seem to be “fairly” priced. Susquehanna says the market is pricing in volatility of about 6% on the earnings, which is the average for Cisco’s earnings reports over the last two years. But, the firm notes, the market is currently in a state of heightened volatility given credit worries, with the Chicago Board Options Exchange Volatility Index, the Vix, closing Thursday up 44% from its July lows. That means Cisco options are a good deal, say the Susquehannans, without specifying specific contracts.

The firm also notes that shares of Netlogic (NASDAQ:NETL), a supplier to Cisco, usually reacts to Cisco’s earnings report, but that the firm’s September options are trading higher than its August options, which means the market may not be appreciating the return to be had in NETL’s August options, so there’s opportunity in those contracts, as well.

Source: Cisco’s Quarter Looking Bright, But Where’s the Stock Upside?