Traders Crank Up the Cisco Chatter

Cisco

(CSCO) - Get Report

isn't due to report earnings for another month yet, but already traders can't stop talking about the networking giant's fiscal third-quarter numbers.

Two days of speculation have sent the stock bounding every which way, dropping 8% Tuesday and rising 5% Wednesday. Each day Cisco was among the most actively traded shares on the

Nasdaq

.

The swings have taken place as investors, longs and shorts alike, have thrown up their hands and given up trying to find the right entry point on the stock. This week has provided a handy illustration of the dilemma, as Tuesday's vague rumors of a shortfall were answered Wednesday by a volley of

squishy reassurances from Wall Street analysts.

"Every rally has been sold back down," says a New York-based hedge fund manager who sold his Cisco position Wednesday. "Every time I try bottom-picking, it just gets worse. After a while, when your sandbox gets filled with land mines, you go play elsewhere."

Swirling

Of course, with 83 million shares changing hands Wednesday, there's some indication most investors aren't interested in checking out another sandbox. But the manager has a point, which is that it seems almost impossible right now to set a realistic value on the stock, with all the rumors floating around. In a hard-to-read market that has been especially tough on telecom stocks, Cisco sits at the center of a swirl of conflicting trends.

On a macro level, the widely anticipated economic recovery doesn't seem to be boosting corporate IT spending. Beacons such as

IBM

(IBM) - Get Report

and

Microsoft

(MSFT) - Get Report

continue to send out dim signals.

That only deepens the distress felt in telecom, where Cisco rivals such as

Nortel

(NT)

,

Juniper

(JNPR) - Get Report

and

Lucent

(LU)

have already warned of first-quarter shortfalls. And making matters even stickier, big customers such as

WorldCom

(WCOM)

and

Qwest

(Q)

continue to thrash about for their survival; both saw their shares fall more than 10% Wednesday.

Each nugget tugs one way or another at Cisco's stock. Complicating the picture even further is that in some regards, Cisco, despite its flagging stock price and its many setbacks in attempting to start into new businesses, stands above the telecom fray. In stark contrast with its competitors, the company has $22 billion in cash at its disposal and continues to churn out profits. Yet the stock also trades at 40 times forward earnings estimates, seemingly promising growth that simply hasn't been evident recently.

Take earnings expectations, which Cisco was once known for unerringly exceeding by a penny. For the current third quarter, analysts expect Cisco to earn 9 cents a share on $4.9 billion in revenue come May 7. A year ago the company earned 3 cents on sales of $4.7 billion. Though the consensus estimates have remained steady, the stock has fallen 8% this month.

Now Hear This

If the stock seems inscrutable, try reading between the lines of CEO John Chambers' occasional public speeches. February was strong, but March was weaker than expected, is the widely accepted translation. That leaves April -- traditionally one of Cisco's weak months -- as the wild card.

On Tuesday, an RBC Capital analyst predicted poor results for Cisco and modestly lowered his numbers. But on Wednesday, highlighting the back-and-forth nature of the debate, analysts such as Banc of America's Chris Crespi felt confident that a "large miss" wasn't in the cards. And UBS Warburg noted to clients Wednesday that Cisco priced its employee stock options on April 5 -- the bank took this as a clear sign that Cisco execs don't think the stock will go lower.

"While Cisco has not been a great predictor in the past of knowing when to issue options, Cisco could have opted to issue these options later in the fiscal year ending July," wrote Warburg's Nikos Theodosopoulos in his Wednesday morning note.

Shoulda, coulda, woulda. Those are words Cisco investors are increasingly familiar with.