Despite the recent turmoil on Wall Street, opportunities still exist for those with the patience to seek them out. For instance, traders with a penchant for the technology sector will want to keep a close eye on this week’s earnings reports, as a broad swath of the technology sector is scheduled to release their quarterly reports this week.
Tucked away amid this latest wave of corporate earnings announcements are reports from networking giant Cisco Systems (NASDAQ:CSCO), software firm CA Inc. (NYSE:CA) and semiconductor specialist NVIDIA (NASDAQ:NVDA).
After the close of trading this afternoon, Cisco is expected to post a third-quarter profit of 47 cents per share on revenue of $11.6 billion, with Wall Street analysts targeting modest growth from earnings of 42 cents per share on $10.9 billion in sales last year. During the past year, CEO John Chambers has refocused the company on its core networking business, leading to steady growth for the past several quarters.
Likely because of this return to its roots, Cisco’s earnings whisper number arrives slightly higher than the consensus at 49 cents per share. The company has topped Wall Street’s estimates in each of the prior four reporting periods by an average of about 12.5%, placing the whisper number well within reach.
Options traders tend to agree, as the put/call open interest ratio for the front three months of options arrives at 0.6. In other words, calls easily outnumber puts in the May, June and July options series. Sentiment is a bit tempered in the weekly series, with the weekly May put/call open interest ratio coming in at 0.82.
Taking a closer look at weekly options activity — since these traders likely are betting directly on CSCO’s post-earnings activity — we find that peak call open interest resides at the out-of-the-money 20 strike, totaling more than 12,000 contracts. By contrast, peak weekly May put open interest numbers 6,946 contracts at the in-the-money 19 strike.
Technically, CSCO has pulled back sharply during the past several weeks, following the broader market lower. As a result, shares are now perched just above potential support near $18.50, as well as their rising 200-day moving average. What’s more, CSCO’s 14-day RSI is boarding on oversold territory, hinting that buyers might be on the verge of returning.
With the company likely headed toward another Street-beating earnings report, and CSCO shares ripe for a return of buying pressure, traders might want to take a bullish stance ahead of the event. Options data indicates that the market is pricing in a post-earnings move of about 5.75%, meaning that a weekly May 19/20 bull call spread has a good chance of turning a profit.
At the close of trading on Tuesday, this trade was offered at 29 cents, or $29 per pair of contracts. Breakeven rests at $19.29, a gain of 3% from yesterday’s close, while a maximum profit of 71 cents, or $71 per contract, is possible if CSCO closes at or above $20 by the end of the week.
While CA Inc. doesn’t carry the same weight as Microsoft (NASDAQ:MSFT) in the software sector, the company still is a solid bellwether for the health of the software market. CA will enter the earnings confessional Thursday afternoon, with Wall Street looking for earnings of 49 cents per share, a rise of 2.1% from the same quarter last year. Revenue is expected to come in 5.3% higher at $1.19 billion.
Historically, CA has been solid on the earnings front, besting the consensus estimate in each of the prior four reporting periods by an average of more than 9%.
Despite its strong fundamental history, the brokerage community is far from enthusiastic when it comes to CA’s prospects. Specifically, analysts have doled out only four buy ratings, compared to nine holds and no sells. Furthermore, the consensus 12-month price target of $28 rests a mere 6.1% above CA’s close at $26.39 yesterday.
Indifference also is apparent in the stock’s options configuration. For instance, the front-month put/call open interest of 0.95 indicates that puts and calls are in near parity. A look at May open interest totals reveals that bears are a bit more negative than bulls are positive, with peak call open interest lying just overhead at the 28 strike, while peak put open interest arrives well below at the 24 strike.