Cisco Systems (Nasdaq: CSCO) is set to report fiscal first quarter earnings on Wednesday, November 13, after the closing bell. The tech bellwether is expected to report earnings of $0.81 per share. I am pretty certain the company will beat its EPS estimate because it almost always does. Cisco is the king of beating earnings by a penny or two—they have been doing it for years. The question is, how will investors react to the earnings report? That is what really matters.
Heading in to the report there are some mixed signals from the daily and weekly charts. On the daily chart we see that the stock has rallied over the last month or so and that has put the stochastic readings in overbought territory. The indicators did make a bearish crossover on November 11.
One other thing we see on the daily chart is that the 10-day moving average just crossed bullishly above the 50-day moving average. This is usually a sign of a change in the trend.
Looking at the weekly chart we see a stock that has just hit an upwardly-sloped trend line that connects the lows from 2017 and 2018. That trend line is just above the 104-week moving average (two years of data).
We also see that the weekly stochastic readings have just moved out of oversold territory in the last few weeks. The indicators did a little double-dip over the last few months, but the momentum seems to have changed a little in the past week or so.
Looking at the fundamental indicators for Cisco, the company has performed pretty well over the last few years. Earnings have grown by an average of 9% per year over the last few years and they were up 19% in the fourth quarter. Sales have increased at a rate of 2% per year and were up by 5% in the fourth quarter.
Where Cisco is well above average are its management efficiency measurements. The return on equity is an impressive 35.9% and the profit margin is at 32.8%. Both of these figures are well above average.
If we combine the ROE, the profit margin, and the sales growth we get the SMR rating from Tickeron. For Cisco the rating is 20 and that indicates very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The best rating a company can get is a 1 and the worst rating is a 100. Cisco is in the top 20th percentile.
Another area where Cisco does well is the Valuation Rating. Cisco scores a 7 in this category and that indicates that the company is seriously undervalued in the industry. A rating of 1 points to the most undervalued stocks, while a rating of 100 points to the most overvalued stocks. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization.
The Tickeron Profit vs. Risk Rating for Cisco is 20, indicating low risk on high returns. The average Profit vs. Risk Rating for the industry is 72, placing this stock better than average.
One area of concern is the Tickeron PE Growth Rating. Cisco scores a 97, pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents. A rating of 1 indicates highest PE growth while a rating of 100 indicates lowest PE growth. Furthermore, the PEG ratio is (0.0) for CSCO, as compared to the industry average of (4.1).
As far as the sentiment indicators for Cisco, they run the gamut. Analysts' ratings are slightly skewed to the bearish side, the short interest ratio is skewed to the bullish side, and the put/call ratio is neutral.