Event: Cisco (CSCO) reports fiscal Q1 results tomorrow night after the close. The options market is implying about 3.5% one day post earnings move in either direction. That is shy of the 4 qtr average of almost 5%, and below the 10 year average of about 6%.
Price Action/ Technicals: Shares of CSCO are up 16.5% ytd, massively outperforming the Nasdaq Composite up 5% ytd, and less than 1% from its 52 week highs made in early September. The stock is at a fairly interesting spot on the chart heading into the print, having bucked large cap tech weakness since the election, nearing the prior highs, but also approaching the uptrend that it broke below in mid October:[caption id="attachment_68173" align="aligncenter" width="600"] CSCO 1yr chart from Bloomberg[/caption]
The stock has near term support at $30, where it was a week ago, and then at $28, with little overhead resistance to the 10 year high from 2007 at $34.25:[caption id="attachment_68174" align="aligncenter" width="600"] CSCO 10 yr chart from Bloomberg[/caption]
But it’s this chart that is likely to get peeps geeked up if we are about to embark on a global reflation trade, there really is no overhead resistance above the 2007 high:[caption id="attachment_68175" align="aligncenter" width="600"] CSCO since 1999 from Bloomberg[/caption]
Our Take Into the Print: CSCO is a cheap stock trading 13x expected fiscal 2017 eps growth of 3% on 1% sales growth. And from a balance sheet and capital return standpoint, it is considered defensive, with 41% of their market cap in cash, 23% net of debt. CSCO pays a dividend that yields nearly 3.3% and in the company is in the midst of a $15 billion share repurchase program and perpetually in an annual restructuring, recently in August they announced a 7% (5500 jobs) workforce reduction.
Potential hiccups for guidance is likely the company’s reliance on emerging markets for future growth and their more than 50% revenue exposure outside the U.S. Since the company guided for the current quarter in mid August, the U.S. Dollar (DXY – US Dollar Index) has rallied 6%, nearing 52 week highs, this likely to be keep Q2 guidance under wraps.
A mild miss and conservative guidance and the stock probably finds support at $30. A beat and raise and the stock is likely off to the races in this current market environment.
We will update this post with some trade ideas tomorrow prior to the results.