Following disappointing earnings Cisco (NASDAQ:CSCO) has left many feeling the tech giant has boxed itself into a hole. But are today’s worries something CSCO stock can climb out of? Let’s take a look at what’s happening off and on the price chart, as well as where and when investors might consider buying shares.
This past week Cisco stock affirmed an important and undesirable business pivot. Citing macroeconomic headwinds, CEO Chuck Robbins guided the blue-chip company’s second-quarter revenues to a 3%-5% year-over-year decline compared to Wall Street forecasts of 2.6% growth.
The downward sales revision looks to disrupt more than two years of rising sales. Moreover, as one of the market’s better gauges of global tech spending, the news could be a shot over the bow to companies as far ranging as Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN). And investors sent a damning message right back at the CSCO stock price as shares tanked nearly 7.5% in the report’s immediate aftermath last Thursday.
Earnings by the Numbers
Still, the report was far from being uniformly bad. Cisco stock did narrowly top analyst profit and sales views for its first quarter. By the numbers Cisco delivered profits of 84 cents per share which beat estimates by 3 cents. Revenues of $13.2 billion came in slightly above a forecast $13.1 billion for the period. Also, inroads away from the company’s traditional networking business model and into more promising growth markets continue to be made.
Cisco’s security business delivered sales of $815 million for the quarter versus estimates of $723 million. That’s promising. And the company’s applications segment including AppDynamics saw revenues of $1.5 billion which squeaked past views of $1.48 billion.
Additionally, while Cisco’s warning appears to have obvious challenges for its largest businesses, the environment should promote cost-cutting advantages. As well, today’s hardships should result in the tech giant pivoting further into more lucrative software and recurring revenue markets for longer-term benefit.
Cisco Stock Price Weekly Chart
On the weekly chart CSCO stock’s post-earnings reaction has undone a constructive double-bottom pattern that has formed over the past three months. The selling pressure also cut beneath trend-line support tied to Cisco’s December 2018 low.
The technical failures aren’t a good sign for CSCO’s near-term direction. The good news is longer-term investors can take solace that shares remain inside a solid support zone. Highlighted in blue, this area is backed by former price congestion, key Fibonacci levels dating as far back as the dot-com era and trend-line support tethered to Cisco’s 2016 bottom.
How to Trade CSCO Stock
Looking ahead, my guess is CSCO stock will find a meaningful low within this defined support area. Now though, a challenge of $39-$40 and the bottom of the price zone looks increasingly likely as short-term fears trump Cisco’s longer-term financial wherewithal. Having said that, there’s no rush to buy CSCO today.
I’d recommend investors wait on price confirmation from a fully developed weekly reversal pattern. Hopefully a buying opportunity forms closer to $40 than current levels near $45 in CSCO stock. And failing that type of value-add in shareholder value? Cisco stock is still within 13% of the zone’s bottom. Cisco also offers a fairly generous yield in excess of 3%. As much, a future purchase of CSCO inside the support zone and in conjunction with a stop-loss beneath $38.60 still holds attractive qualities off and on the price chart.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
