Cisco Systems (NASDAQ: CSCO) is set to report its Q3-2009 earnings after the close.  Cisco’s growth is currently off the table if estimates are accurate, but the Thomson Reuters estimates are $0.25 EPS and $8.07 billion in revenues.  This would be down from $0.38 EPS and $9.79 billion in revenues for the same period a year ago.

Cisco usually refrains from giving detailed long-term guidance, but the estimates for next quarter are $0.27 EPS and $8.26 billion in revenues.

Out of our own inquiries , it seems that there is a belief that Cisco will come in higher than estimates due to what has been seen elsewhere in tech and based on the comments seen elsewhere in the economic-giants.  Even after a drop of more than 2% at $19.16 today, this stock is up almost 50% from its $13.61 lows.  Its 52-week range is $13.61 to $27.72.

A problem exists on the valuations here as we also keep coming back to.  The analyst targets seems to be about $21.00.  If the company hits the 2009 estimates, it trades at about 15-times earnings.  The estimate from Thomson Reuters shows a $0.06 EPS drop to $1.19 for fiscal July 2010.  The good news is that this number is lower than this year’s number, so the benchmark is set very low even if John Chambers says that the company is tied to global GDP growth.

Options traders appear braced for a move of $0.85 to $1.00 in either direction based upon today’s share prices for options that expire in 9 days.

We’ve already noted that the stock has risen almost 50% from its range lows of the last year.  Even if the move may be deemed too much by the bears, the good news on the charts is that this is also enough above the 200-day moving average of $18.41 and above the 50-day moving average of $16.86 that there is some solid support.

The short interest of 75.147 million shares sounds high, but that is nothing in the grand scheme of things.

If Cisco can convince the analysts that a turn is at least coming within sight, then the analyst reports will hint that the 2010 estimates are too low.  The question of whether the valuation is fair depends on what sort of multiple you are willing to assign for the forward year.  Our take is that Cisco was sold off too much.  But after the move from the market and after looking at the estimates, the company is going to have to show a solid return of business for Chambers and his cohorts to be able to justify a significantly higher share price.

It is easy to think that the market reaction will revolve solely around the mood of Chambers.  He may be able to talk up the push for the unified computing platform as a large growth engine.  That is not in the analyst numbers for a major additional bit of revenues from the looks of it.  Here was the crux of Chambers’ comments at the last earnings report:

• “We remain comfortable with our long-term vision and strategy… and prioritize our existing opportunities…. intend to accelerate the alignment of our resources to prioritize future growth opportunities, gradually decrease our operating expenses……” That wasn’t exactly bullish, but also was not calling for the end of the world.

JON C. OGG

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.