Monday, February 14, 2011

Cisco Systems, Inc. (NASDAQ:CSCO) Q1 2011 Analysis

Recent price: 18.70$
P/E Ratio: 14.17
3 months Target Price: 22$

Company Description
As stated on their website, Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Today, networks are an essential part of business, education, government and home communications, and Cisco Internet Protocol-based (IP) networking solutions are the foundation of these networks.

Cisco hardware, software, and service offerings are used to create Internet solutions that allow individuals, companies, and countries to increase productivity, improve customer satisfaction and strengthen competitive advantage. The Cisco name has become synonymous with the Internet, as well as with the productivity improvements that Internet business solutions provide.

Confidence Margins
Strong resistance $24.60 (+32%)
Light resistance $22.34 (+5%)
Light support $18.46 (-13%)
Strong support $17.50 (-18%)

Once again, the company provided very disappointing quarterly results and provided very poor earnings outlook, way lower than what analysts were expecting. Cisco is getting squeezed in it's operation by their competitors. These are coming with services that match those of the giant, while providing them for a lower price. The effect of this increased competition is lower margins, which is hitting the shares of Cisco Systems, Inc.

Entry strategy
For the cautious investor:
The best thing to do here is suggested to initiatiate a long position. The stock should be acquired while it is still under 19$.

For the risk-taking trader:
The July 2011 20$ call option contract seems to be the right position to take, they can be acquired for 79$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 22$, or keep it until 24$ if the stock crosses the light resistance level.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 22, as for the cautious investor.

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