Dow component Cisco Systems Inc. (CSCO) reports fiscal Q2 2022 earnings after Wednesday’s closing bell, with analysts expecting a profit of $0.81 per-share on $12.66 billion in revenue. If met, earnings-per-share (EPS) will mark a $0.02 increase compared to the same quarter last year. The stock fell more than 5% in November after the company lowered Q2 revenue guidance due to ongoing supply disruptions. It bounced off the low into December, topping out at a 21-year high.
Spending Cuts Worry Analysts
The networking giant then failed a breakout above the 2019 peak in the upper 50s, dropping into a test at the 200-day moving average in the low 50s. Analysts are worried the company is pulling back on IT spending, which raises red flags because the metric correlates with enterprise and commercial sales strength. However, it’s possible that strong demand for the flagship Catalyst 9000 hardware products and campus networking could cancel out those pockets of weakness.
Goldman Sachs analyst Rod Hall downgraded the stock to ‘Neutral’ from ‘Buy’ in January, hoping that Cisco clarifies the cutbacks in this week’s report. He concedes that order backlogs are at an all-time high but believes that “order growth is more important and that orders could slow and IT spending trends weaken”. He then adds “an order trajectory change and accompanying commentary on demand would likely be more important for Cisco’s stock than would backward-looking backlog clearance”.
Wall Street and Technical Outlook
Wall Street consensus stands at an ‘Overweight’ rating based upon 11 ‘Buy’, 3 ‘Overweight’, 13 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $54 to a Street-high $73 while the stock is set to open Monday’s session nearly $1 below the low target. This weak placement highlights continued Main Street caution about supply disruptions and the dampening impact of high inflation on big tech profits.
Cisco Systems posted an all-time high in the low 80s in 2000 and fell to a two-year low in 2002. It’s traded within those boundaries for the last two decades, finally turning higher in 2012. The subsequent uptick stalled within two points of the .786 Fibonacci selloff retracement level in December 2021, yielding a nasty distribution wave that could signal the end of the uptrend. The failed breakout above the 2019 high is doubly bearish in this context, requiring a rally above 58.25 to negate long-term sell signals.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire
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