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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, November 08, 2006

Cisco Earnings Preview

Cisco Systems (CSCO) reports earnings after the close tomorrow, and expectations are $0.29 EPS and $7.9 Billion in revenues. The large jump in year-over-year revenues is largely because of the Scientific Atlanta acquisition that closed earlier this year. Back in August Cisco projected a 15-20% jump in Fiscal 2007 revenues, and a 19-21% jump in revenues for this quarter.

The stock is now up roughly 42% since its last earnings. It closed at $17.29 before earnings on August 8, jumped in 1-day to $19.78, traded up to $21.10 within a week, closed over $22 on September 1, and was strong for most of the last two months. Just as of last Friday CSCO looked as though it was petering out, but it rose essentially 4% yesterday and put in a new high for the year.

For a beast the size of CSCO to rise 42%, which is even higher than originally thought, this company needs to do another "WOW" quarter and would seemingly need to show some fairly incredible predictions. The market cap is back up to $151 billion. If investors are not amazed at how well the company did and how the Scientific Atlanta and other deals are contributing to the top-line and bottom-line then you could easily expect some profit taking. The flipside is that unless the news is just unexpectedly bad on guidance, then that profit taking may be answered by many buyers who thought they missed the CSCO boat. With the exception of those couple of months in early 2004 when CSCO went from under $25 to $29+, the stock is back at the higher-end of its very long-term trading band.

The street is going to focus on guidance to see if the company is ahead of itself or if there are more goodies in store. The coming quarter is expected to show $0.30 EPS and $8.05 Billion in revenues. Since they gave some fiscal (July) 2007 guidance already, the street is roughly $1.28 EPS and $33.3 Billion in revenues for fiscal 2007.

Options traders appear to only be expecting a move of $0.58 to $0.65, but that could change between now and tomorrow afternoon as analysts make their more finalized targets and projections. Options traders also got burned last quarter if they weren't expecting the large move, so it is somewhat surprising that the volatility and pricing in CSCO stock options are that low.

CSCO's 52-week trading range is $16.87 to $24.85, although that $24.68 close yesterday was higher than any recent closes and that high of $24.85 was also put in on an intraday basis yesterday. Right after the open, CSCO is putting in new highs ar $24.90 as investors try to make their trades within the last 48 hours.

Jon C. Ogg

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