If you've waited for shares of Cisco (CSCO) to get cheaper, now's your chance to buy in. The network equipment maker will report third-quarter fiscal 2016 earnings results after the closing bell on Wednesday. While Cisco is not expected to woo investors with breathtaking numbers, its chart says a rise of more than 6% could be in the cards.
For the quarter that ended in April, the average analysts' earnings-per-share estimates calls for 55 cents, on revenue of $11.97 billion. In the year-ago quarter, the company earned 54 cents per share on revenue of $12.14 billion. For the full year ending in July, Cisco's earnings are projected to rise 2.7% year over year to $2.27 per share, while full-year revenue of $48.96 billion would mark a 0.4% decline from the year-ago period.
Cisco is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Cramer and Research Director Jack Mohr wrote on Friday, "We continue to believe the company is being valued as a mature, 'old tech' business despite its burgeoning cloud presence, which should lead to outsized earnings growth over the long term. Its powerful capital allocation program -- marked by a 3.9% dividend yield and massive buyback program -- pays investors as they sit back and witness the market re-rate shares to the upside. In fact, we view its juicy dividend as highly attractive against the backdrop of a 'lower for longer' rate environment, with 10-year Treasury notes yielding 1.75%. We reiterate our $30 price target."
Cisco stock closed Monday at $26.97, up 1.66%. The shares have declined 0.68% year to date, including declines of 4.33% in the past 30 days, trailing the 1.11% year-to-date rise in the S&P 500 (SPX) index. Cisco stock has declined 8.73% over the past year, while the S&P 500 index has declined 2.64%.
Still, from a technical perspective, Cisco stock looks strong. It could be poised to outperform the S&P 500 in the next six months, starting Wednesday. Take a look at Cisco's chart, courtesy of TradingView.
Since February, Cisco stock has traded in a tight range between $26 and $28.50. In determining where the stock will go next, it's important to factor in Wall Street's fundamental sentiment, including Cisco's consensus buy rating and its average analyst 12-month price target of $30. Also, the shares have declined some 6% since the end of April.
Despite the decline, Cisco stock has maintained support at around $26.21 per share (the bottom blue arrow). At the same time, the top blue arrow shows near-term resistance at around $27.58 per share, or about 2.26% higher. Both its 20-day (at $27.38, the blue line) and 50-day ($27.70, the pink line) moving averages converge around that area. There's a strong bet that this target will soon become support. Then resistance at $28.69 could fall, delivering gains of more than 7%.
How to execute the trade: Place a market order Tuesday at $26 to $27. Hold the shares through the earnings announcement, as resistance (the top blue arrow) at $27.58 could become support. The bet is that Cisco will beat on both the top and bottom line on Wednesday, sending the shares 7% higher to $28.69.