What Cisco's Technicals and Fundamentals Say Ahead of Earnings
Tech giant $Cisco (CSCO.US)$ will report fiscal Q1 earnings next week at a time when its stock is up some 30% since August, but still below levels seen in both the 2021 and 2000 stock-market booms. What does the company's technical and fundamental analysis look like heading into next Wednesday’s scheduled report date?
Let's check it out:
Cisco's Fundamental Analysis
CSCO – which sells systems for networking, security and cloud services – plans to report earnings after the bell next Wednesday (Nov. 13).
As I write this on Thursday afternoon (Nov. 7), analysts are expecting the company to post $0.87 in adjusted earnings per share on $13.75 billion of revenue.
That would represent a 2.2% decline from the $0.89 in adjusted EPS that CSCO reported in the year-ago period, as well as a 6% drop year over year in revenues.
The stock currently trades at 16x estimated forward earnings vs. the tech industry's 28x average.
CSCO also currently pays stockholders $1.60 per share in annual dividends (a roughly 2.85% dividend yield). Short interest stands at 1.43% of the stock's total float, which is very low by market standards.
Meanwhile, Cisco generated $10.9 billion of operating cash flow and $10.21 billion of free cash flow in the 12 months ended July 27. Those look like fairly beefy numbers, and CSCO used $6.8 billion of that to repurchase common stock over the past 12 months, plus $6.4 billion to pay out dividends.
As for Cisco's balance sheet, the company had $18.6 billion in cash as of July 27, along with $3.4 billion of inventories and $38.9 billion in current assets.
That measured up against $40.6 billion in current liabilities, excluding $11.4 billion in debt maturing within 12 months. Those numbers put the firm's current and quick ratios at 0.96 and 0.87, respectively.
Such ratios might not look so hot to many investors, but Cisco's list of liabilities includes $16.3 billion in unearned revenue -- something Wall Street generally doesn't view as a true financial obligation.
Once adjusted for unearned revenue, Cisco's current and quick ratios improve to 1.58 and 1.46, which many would say isn't bad at all.
In fact, of the 18 sell-side analysts I found that cover Cisco, 14 have raised their earnings estimates for next week's results since the current quarter began.
Cisco's Technical Analysis
Here's Cisco's daily chart going back a little more than a year:
Readers will see quite a lot going on here, such as a giant cup pattern that stretches September 2023 to the present time (the light-blue line in the chart above).
This cup hasn't yet added a handle, which such patterns don't always produce. But when they do, the stock's pivot point traditionally moves from the pattern's left-side top to its right-side top.
Additionally, readers will see that the cup pattern above displays a 100% Fibonacci retracement (denoted by the gray boxes above) of Cisco's September 2023-to-August 2024 sell-off.
A Raff Regression model (the shaded red and blue fields to the chart's right) also illustrates this retracement move.
The multiple orange ovals on the chart show areas where Cisco saw price gaps. Notably, the latest such gap from early November (denoted with the oval all the way to the chart's right) has not yet filled.
That fact and the stock's 100% Fibonacci retracement suggest a potentially imminent addition of a handle to Cisco's cup pattern.
Readers will also see that CSCO's Relative Strength Index (the gray line at the chart's top) borders on being technically overbought. That's another sign of the stock forming a possible handle.
Lastly, Cisco's daily Moving Average Convergence Divergence -- or "MACD," denoted by the black and gold lines and blue bars at the chart's bottom -- looks somewhat noncommittal.
CSCO\'s 12-day Exponential Moving Average (or "EMA," denoted with a black line above) is attempting to cross over its 26-day EMA, marked with a gold line. That's typically a bullish technical indicator.
However, the histogram of Cisco's 9-day EMA (the blue bars above) is currently neither in positive nor negative territory.
Add it all up and CSCO looks like it's currently working with a $58 pivot point, which also happens to be the 100% Fibonacci retracement level.
Should the stock's chart develop a handle from here, Cisco’s pivot would likely remain at $58 given that the cup pattern's two sides are of equal height. But if CSCO rallies a bit more ahead of developing a handle, its pivot point would typically rise.
(Moomoo Markets Commentator Stephen "Sarge" Guilfoyle had no position in CSCO as of the time of writing this column.)
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