What Options Traders Expect When Cisco Reports

NEW YORK (TheStreet) -- Internet routing hardware maker Cisco Systems  (CSCO) is expected to report earnings after the market closes on May 14. Investors aren't expecting an improvement in earnings. The average estimate is currently 48 cents a share, falling 3 cents (5.9%) from 51 cents during the matching period last year.

CSCO Chart

Analysts are estimating as low as 47 cents per share, up to the most optimistic estimate of 49 cents per share. I believe Cisco will top the consensus and earns at least 49 cents.

During the last 52 weeks, the stock traded in a range of $20.22 to $26.49, and we are more or less right in the middle, albeit just above the 200-day moving average.

If we take a look at the options market, clues will emerge to what other investors are anticipating and thinking. Currently, based on call and put option trading, the market is expecting about a 6% or less price move. Options are pricing in a range of $21.57 to the downside and $24.31 at the upper end.

In order to profit from buying puts or calls, Cisco will have to move beyond those levels or you'll risk being right and still losing. The flip-side is if you think the shares will stay within that range, you can sell option premium in the earnings front contract and profit if you're correct.

After the last earnings release, Cisco shares fell about 3.76%.

The majority of analysts believe Cisco continues to offer a buying opportunity, with 23 of the 42 analysts covering the company giving a buy recommendation. Fifteen are taking a more cautious approach, and rate it a hold. As of the last update I have, four analysts recommend selling some or all holdings. New investors from a year ago are happy, and analysts rating this company a buy have called it correctly. The shares have moved higher 11% over the last 52 weeks, compared to a 20.3% return for SPDR S&P 500 ETF (SPY). Analysts are calling for a price target of $23.84.

Cisco is one of my four technology dividend kings. The list of royalty includes Microsoft (MSFT), Intel (INTC) and AT&T (T). I love buying these dividend winners on dips. I'm especially bullish with Microsoft and have been for over a year, compared to my bearish outlook for Amazon (AMZN).

If you intend to buy-and-hold beyond a year, the recent decline from the $26 highs offers an attractive entry. Cisco pays an annual dividend of 76 cents for an effective yield of about 3.3%.

The company began paying a quarterly dividend in 2011 at 6 cents per share. Since that time, the rate has rocketed higher to almost three times as much. Few large companies, if any, have increased as fast.

I consider short sellers the smart money on Wall Street. They never sleep, and they are perpetually seeking out any market inefficiency or business flaws to exploit. They're not finding an opportunity with Cisco and only 1.5% of the shares are shorted. That's about as convincing as an investor will find.

I like Cisco, and I especially like the low forward earnings multiple as a long-term holding.

CSCO Revenue (Quarterly) Chart

At the time of publication, Weinstein had no positions in securities mentioned.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

If you liked this article you might like

This Is the Perfect Time to Buy Dividend Stocks

This Is the Perfect Time to Buy Dividend Stocks

Goldman Bankers (Mostly) Upbeat on Tech M&A and IPO Trends

Goldman Bankers (Mostly) Upbeat on Tech M&A and IPO Trends

Wall Street Futures Are Upbeat Ahead of Long Weekend

Wall Street Futures Are Upbeat Ahead of Long Weekend

Stocks Explode, Walmart Eyes Stake in India's Flipkart - 5 Things You Must Know

Stocks Explode, Walmart Eyes Stake in India's Flipkart - 5 Things You Must Know

Bulls Back on Track; Bitcoin Breaks Above $10,000 -- ICYMI

Bulls Back on Track; Bitcoin Breaks Above $10,000 -- ICYMI