Cisco Systems, Inc. (NASDAQ: CSCO) reports earnings after the close.  Our guess is that Main Street is going to either really reward or really punish the stock.  All companies in telecom and communications are on guard for this report. A poor earnings report from Oracle Corporation (NASDAQ: ORCL), a weak Juniper Networks, Inc. (NYSE: JNPR) and a dismal trading cycle in Alcatel-Lucent SA (NYSE: ALU) have Cisco investors nervous.  If you just looked at the recent performance you would think that everything was going great in this turnaround and post-restructuring.

Lower compensation and SG&A may offset discounting in bundled product offerings as Cisco is seeking more and more of an enterprise’s total technology budget.  Our fear is long-term lower margin compression after years and years of being technology’s envy in gross margin.

Cisco is down ahead of earnings but still just above this $20.00 mark against a 52-week trading range of $13.30 to $22.15.  Analysts have a consensus target of $21.66, but we just saw one target on Tuesday morning from Credit Suisse at $26.00.

As far as expectations… Thomson Reuters has consensus estimates of $0.43 EPS and $11.23 billion in sales.  For the quarter we are already in, the estimates are $0.45 EPS and $11.46 billion in revenues.  For the July year-end, the estimates are $1.77 EPS and $45.83 billion in revenues.

Cisco trades at an implied 11.4-times current year earnings estimates, and maybe even a tad less if you factor in the wasted billions used for share buybacks.

Chart analysis is not worth much here today in all honesty.  Cisco is at a post-reorganization high and back over $20.00.  The 50-day moving average is $18.92 if there is another blow-up, but here are the shorter moving averages… 5-day at $20.08, 10-day at $19.88, and the 20-day is at $19.71.

Options traders appear to only be pricing in a move of up to $0.60 or even a tad less using the monthly options which expire in a week and a half. For whatever this is worth, options traders are much more heavily involved in at-month Call options over Put options with at least a 2.5:1 ratio if you combine weekly and monthly trading volumes.

Cisco has pledged to raise its quarterly dividend of $0.06 ‘in time.’  It has now had four consecutive payments of that rate of $0.06 per share per quarter and that yield comes to only about 1.2% for new investors.  Longer-term, that dividend needs to go over 2% if it wants to entice income-oriented investors.  It is possible that we will get a dividend hike.  If not this quarter, we expect one soon.

JON C. OGG

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