It’s earnings time for networking giant Cisco Systems, Inc. (NASDAQ:CSCO), and investors will be watching to see if CSCO stock can extend its rebound off its October lows.
CSCO shares are among the few tech stocks that have not tanked following Donald Trump’s win in last week’s presidential election, with CSCO stock shaking off hiring and trade concerns that have plagued the likes of Apple Inc. (NASDAQ:AAPL). With the future in mind, tomorrow’s guidance may be more important than earnings.
Speaking of earnings, Wall Street isn’t expecting much from Cisco’s fiscal first-quarter report. The consensus has the networking bellwether posting a profit of 59 cents per share — flat with year-ago results. Revenue, meanwhile, is expected to drop 2.8% year-over-year to $12.33 billion.
That said, the brokerage community remains bullish on Cisco stock. According to EarningsWhispers.com, CSCO’s whisper number clocks in at 60 cents per share — a penny higher than the consensus. Additionally, 21 of the 35 analysts following CSCO stock rate the shares a “buy” or better. That said, there is room for price-target increases, as the 12-month consensus price target of $33.50 represents a premium of only about 6.7% to Monday’s close.
Click to Enlarge There is a touch of caution among Cisco options traders, however. Currently, the November/December put-call open interest ratio rest at 0.84, with calls and puts in near parity.
This ratio rises slightly to 0.86 for the November series expiring this Friday, hinting at a bit more caution from this speculative group.
Overall, November implieds are pricing in a potential post-earnings move for CSCO stock of about 3.1%. This places the upper bound at $32.23, while the lower bound lies at $30.27.
The $32 area is a significant technical hurdle for CSCO stock, and a breakout here could lead to a much bigger move in the following weeks. Meanwhile, support should remain firm in the $30 region, barring any major surprises from Cisco.
2 Trades for CSCO Stock
Call Spread: CSCO stock remains a stalwart among the buy-and-hold traders, but short-term resistance near $32 could create issues for Cisco options traders. If you’re willing to take a risk, however, the Dec $32/$33 bull call spread offers a nice potential return.
At last check, this spread was offered at 34 cents, or $34 per pair of contracts. Breakeven lies at $32.34, while a maximum profit of 66 cents, or $66 per pair of contracts, is possible if CSCO stock closes at or above $32 when December options expire.
Put Sell: The market is nearing overbought levels in the wake of the Trump rally, however, and buying power may not be as strong for the next several weeks. Traders concerned about CSCO stalling might want to consider a Nov. 18 series $30 strike put sell.
At last check, this put was bid at 20 cents, or $20 per contract. If CSCO stock closes at or above $30 by the close on this Friday, traders entering this position will retain the premium received for opening the position.
If CSCO stock trades below $30 ahead of expiration, however, then traders may be assigned 100 shares at a price of $30 per share, for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.