Shares of Cisco Systems (CSCO) are racing to new 52-week highs on Thursday, a day where the Dow Jones and other major indices opened notably lower following some trade-war anxiety and a less-than-stellar retail sales number.
Cisco stock shook off the weak open, climbing more than 4% in morning trade. Ultimately though, shares ended higher by just 1.89% at $48.40. Fueling the move is a top- and bottom-line earnings beat and after adding $15 billion to its buyback plan, bringing the total to $24 billion.
So how do we trade this tech giant?
The $48 to $49 area has been acting as notable resistance since the start of the fourth quarter. With Cisco’s gap up over this area — amid a tough open on Wall Street no less — it’s highly encouraging for new and longstanding investors alike.
New investors can play it one of a few ways now. Either chase Cisco stock up 3% to 4% and use a close below $48 as a way to mitigate risk. More conservative investors can wait and hope for a pullback down to the $48 to $49 level and initiate a new long position. Both sets of “new buyers” can use a more conservative stop-loss strategy if they feel comfortable with that instead. In that case, they can also use uptrend support (purple line) or the 21-day moving average as a way to mitigate downside risk.
Provided Cisco can maintain support, what are we looking for on the upside? Trend resistance (blue line) would allow for a move into the low- to mid-$50s before Cisco stock tires itself. While shares are on the cusp of becoming overbought, they can certainly climb higher after a well-received earnings report. That’s particularly true if we get more positive trade headlines.
On the flip side, persistent negative trade headlines could derail the recent stock market rally and give investors a solid buying opportunity in a name like Cisco on a pullback.
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Cisco Earnings
Non-GAAP earnings of 73 cents per share beat consensus estimates by a penny, although GAAP earnings of 62 cents per share missed estimates by 2 cents per share. Revenue of $12.45 billion grew 4.7% year-over-year and eked past estimates by $30 million.
The quarter was good, but it was likely the other positive factors that gave Cisco a boost. Like its big buyback, now at $24 billion, while its market cap sits at $213 billion. Cisco also bumped its dividend by 6%, giving it a yield of almost 3%. Management’s third-quarter outlook also gave investors some optimism.
Revenue guidance of $12.91 billion to $13.2 billion came in ahead of consensus expectations of $12.85 billion, while earnings estimates of 76 cents to 78 cents per share was slightly ahead of the 76 cents a share consensus expectation.
Finally, the analysts are on board as well. JPMorgan analysts bumped their price target from $59 to $60, Citigroup raised their price target to $56 and RBC Capital bumped up to $58. A pair of analysts — Keybanc and Jefferies — went up to $55 a share while MKM partners raised their target to $54. Even at $54, we’re talking about more than 10% upside.
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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.