Cisco Systems (CSCO) Stock at $42 in 2021: What to Expect from the Earnings Report

Cisco Systems, Inc. (CSCO) is set to announce its fiscal first quarter 2021 earnings after the market closes on Thursday. Analysts forecast earnings per share (EPS) of $0.70 on revenues of approximately $11.85 billion. This EPS estimate represents a 17% decline compared to the same quarter in 2019, reflecting ongoing challenges for the networking giant.

Key Highlights

• Cisco issued a warning in August about lower-than-expected earnings and revenue for Q1.
• The stock price is hovering just above its March 2021 low, signaling investor caution.
• Technical indicators suggest the stock is oversold, providing a modest potential advantage for buyers.

Traditional revenue from routing and switching hardware has been in decline for several years, prompting Cisco to pivot toward software and services to drive growth. While this transition has seen limited success, these newer segments have yet to fully offset the decline in hardware sales. Cisco may need to pursue further investments, acquisitions, and restructuring efforts to return to a growth trajectory.

Wall Street sentiment on Cisco remains mixed, with a "Moderate Buy" consensus rating based on 10 buy and 9 hold recommendations. No analysts currently advise selling the stock. Price targets range from $36 to $55, with the current trading price about $8 below the median target of $47. While there is upside potential, the August guidance cut tempers expectations for a positive earnings surprise.

Understanding Restructuring

Corporate restructuring involves significant changes to a company's financial and operational framework, often undertaken to address financial challenges. This process can include modifying debt, operations, or organizational structure to enhance stability and improve business performance.

Cisco Stock Performance (2000 – 2020)

The stock reached its all-time high of $82 in 2000 after a prolonged uptrend accompanied by eight stock splits. Following the internet bubble burst, the price plummeted to single digits and has remained within this range for nearly two decades. A recovery attempt in 2007 stalled below the 38.2% Fibonacci retracement level, while support was established about five points above previous lows around 2011, forming a double bottom reversal.

By 2017, Cisco's stock price revisited its 2007 high and broke out several months later. It climbed to the 61.8% retracement level in April 2019 but reversed course in August, confirming resistance at this key harmonic level. The pandemic-induced sell-off in early 2020 pushed the stock to a two-year low, where it found support near the 38.2% retracement.

Short-Term Outlook for Cisco

The recovery attempt in mid-2020 faltered in June, with the stock testing its Q1 lows once again. Resistance near the 50-month exponential moving average (EMA) in the low $40s may cap gains toward the end of the year. The upcoming earnings report will likely influence price direction in 2021, with an unfilled price gap between $44 and $47 serving as a potential target.

The monthly stochastic oscillator indicates the stock is oversold, similar to levels that preceded buying cycles in 2012, 2013, and 2019. However, Cisco's slow-moving price action suggests that a rapid trend reversal is unlikely. A decisive move above the 50-month EMA would be required to signal renewed buying interest, so investors should exercise patience.

What Is a Stochastic Oscillator?

This momentum indicator compares a security's closing price to its price range over a specified period. By adjusting the time frame or applying moving averages, traders can reduce its sensitivity to market fluctuations. The oscillator generates signals of overbought and oversold conditions within a 0-100 scale, aiding in timing entry and exit points.

Conclusion

As Cisco Systems approaches its earnings announcement, the stock trades just above its March 2021 two-year low. Investors should weigh the mixed analyst outlook, recent guidance cuts, and technical indicators when considering positions.

Disclosure: The author held no positions in Cisco Systems at the time of publication.

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