Cisco Systems, Inc. (NASDAQ:CSCO) will join the earnings fray this Wednesday, and CSCO stock traders are anxious for the results.
Cisco stock has spent the better part of the past month banging away at resistance near $31 in hopes of breaking out to levels not seen since 2007.
What’s more, CSCO is being squeezed by support at its 10-day and 20-day moving averages, and something’s bound to give with Wednesday’s report.
Diving into the numbers, the consensus hasn’t set its sights very high for Cisco’s earnings. Currently, Wall Street is expecting a profit of 60 cents per share for the fourth-quarter, up a penny from year-ago results. Revenue is seen dropping 2.1% to $12.57 billion.
Despite the relatively flat expectations, sentiment is quite bullish on CSCO stock. Specifically, EarningsWhispers.com reports a fourth-quarter whisper number 61 cents per share — a penny better than the consensus. Additionally, 16 of the 22 analysts following Cisco stock rate the shares a “buy” or better.
However, there is still room for improvement, as the 12-month price target of $31.56 represents a premium of only about 1.2% to Monday’s close.
Click to Enlarge Options traders are also firmly in the bulls’ camp. At last check, the August/September put/call open interest ratio rested at 0.51, with calls practically doubling puts among options set to expire within the next two months. This ratio rises only slightly to a reading of 0.59 for the August 19 series, which expires at the end of this week and will be most affected by tomorrow’s quarterly report.
Overall, August implieds are pricing in a potential post-earnings move for CSCO stock of about 4.5%. This places the upper bound at $32.40, while the lower bound lies at $29.60. A breakout would put CSCO above its pre-crash highs near $32, while a decline would breach not only trendline support, but also round-number support at $30.
2 Trades for CSCO Stock
Call Spread: CSCO has performed well this year, breaking out following Cisco’s last quarterly report. Wall Street has still set the bar relatively low, however, and we could see a repeat of the third-quarter’s earnings reaction — especially on any positive news or guidance. Traders looking to jump on the bullish bandwagon might want to consider a Sept $32/$33 bull call spread.
At last check, this spread was offered at 29 cents, or $29 per pair of contracts. Breakeven lies at $32.29, while a maximum profit of 71 cents, or $71 per pair of contracts, is possible if CSCO stock closes at or above $33 when September options expire.
Puts Sell: However, following the broader market’s recent run to all-time highs, CSCO stock is hovering just below overbought levels. The shares still have plenty of upside potential, but CSCO may stall a bit longer than expected before setting any meaningful course higher. Traders concerned about CSCO stalling might want to consider an August 19 series $29.50 strike put sell.
At last check, this put was bid at 14 cents, or $14 per contract. If CSCO closes at or above $29.50 by the close on this Friday, traders entering this position will retain the premium received for opening the position. However, if CSCO stock trades below $29.50 ahead of expiration, then traders may be assigned 100 shares at a price of $29.50 per share for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
