Cisco Systems Inc. (NASDAQ: CSCO) is set to report earnings after the close.  What is interesting here besides the belief that John Chambers will be more than just cautious is that traders have been buying up Cisco ahead of the earnings report.  Shares had been up more today before the market sell-off, and if Cisco stock stays in positive territory it will mark the third day that the stock is up.

Here are the Thomson Reuters (First Call) consensus estimates:

• For the past quarter, estimates are $0.30 EPS and $9 billion in revenues.
• The current quarter we are in is expected to end with earnings at $0.29 EPS and $8.71 billion in revenues. 
• For the fiscal period ending July, 2009, estimates are $1.33 EPS and $37.04 billion in revenues.

Despite a research upgrade this week, analysts are still more cautiousthan they were in the past.  This week we saw an upgrade from StifelNicolaus and last month AmTech downgraded it.  Analysts have a targetof roughly $20.00.

Options traders appear to be braced for a move of roughly $1.00 ineither direction.  We have already noted that traders have been buyingthis one and today would mark a gain of three consecutive days if thegains hold.  This stock has also clawed into support at $15.00 pershare from November to now.  The high-end of a recent trading range hasbeen around $17.50.

For Cisco to rally, it probably doesn’t have to beat earnings estimatesnor does it need to raise guidance.  Our take here is that Cisco justhas to show that things are not heading to you know where in a handbasket.  We will be surprised if there are any major guidance commentsfor longer than a quarter.  We also think it would be a very tough sellfor John Chambers to be too robust to buck the entire tech and telecomtrend by making too aggressive of statements for what lies beyondsummer.  This is expected to be somewhere around an 8% sales drop on an apples to apples basis.  It will be interesting to see if John Chambers belies the same as Intel and Microsoft that growth will resume, but from a lower yardstick.

Jon C. Ogg
February 4, 2009

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