The market got crushed by a massive sell-off in the European banking sector, and plunging oil prices, but rumor came to the rescue.
The much anticipated bounce did occur today. A massive sell-off in the European banking sector and new lows for oil combined to drive the indices lower. The good news is that the S&P hit the 1810 level, the January intraday low, and was able to bounce from support.
At the risk of sounding redundant, oil prices went on yet another wild ride in today's session, helping to depress the market. Supply and demand imbalances, high levels of production and dwindling growth expectations combined to send WTI back to lows not seen since 2003. Also at the risk of sounding redundant, yet another headline out of the oil patch popped up in late trading to put a bid back into the market. According to the Wall Street Journal, the UAE oil minister says OPEC is ready to wheel and deal in order to support oil prices. Of course, this is mitigated by the January OPEC report which shows that Saudi and all-OPEC production increased in the month.
Adding further volatility to today's session was additional testimony from Janet Yellen. Today she appeared before the Senate Banking Committee and did little to reassure the market. According to her we're not sure if the 2008 problems have been fixed, we might go into recession, it's possible we could see negative interest rates and market volatility is not the Fed's fault.
Basically, not much has changed in the market. Oil prices are still in price discovery, the economy is on uncertain footing and there is no telling what the FOMC may do next. In the meantime, there are some businesses that are crushing it in terms of earnings.
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Cisco Systems - CSCO Company Description
Cisco reported after the bell yesterday and did more than please investors. The results, plus forward guidance, an increase to the dividend and an increase to the share buy back plan drove shares higher in today's session. The stock gained nearly 10%, broke above the previous resistance, moved up off the short term moving average after gapping higher and all on 2.35X average daily volume.
Cisco Systems, Inc. supplies data networking products for the Internet. The Company's Internet Protocol-based networking solutions are installed at corporations, public institutions and telecommunication companies worldwide. The Company's solutions transport data, voice, and video within buildings, across campuses, and around the world.
Why We Like It
Cisco reported earnings after the bell and did more than stun the market with its results. In the face of weak global growth and poor earnings results for the broader tech sector this company has been able to grow revenue, grow earnings and all on the back of increased demand.
Quarterly earnings rose to $3.1 billion or $0.62 per share, up 29.1% and 34% respectively from last year in the same period. Revenue rose 2% year over year due to a 2% increase in product revenue and a 3% increase in service revenue. All geographic segments saw growth, led by the Asia/Pacific region with an 11% increase. In terms of business segments product revenue was led by an 11% increase in security revenue, evidence of the ongoing need for business around the globe to bolster their online security. Margins are also on the rise driven by productivity improvement and a 7% decline in GAAP operating expenses.
The board of directors approved an increase to dividend, in line with the companies pledge to return 50% of free cash to investors. The new dividend is $0.26 per share, up $0.05 or 24% from the previous quarter.
The board also approved an increase to the current share repurchase program. The previously approved program totaled near $97 billion of which about $1.9 billion is left. The new addition is for another $15 billion, with no time limitation, making the total available for repurchase $16.9 billion.
The company also reaffirmed guidance for the 3rd quarter of fiscal 2016. Management is expecting earnings of $0.54 to $0.56, bracketing the consensus estimate, on revenue of $12.26 to $12.62 billion. Consensus revenue estimates are only $12.03 billion. High end estimates are closer to $13 billion, leaving plenty of room for Cisco to beat estimates yet again and if they continue to grow their customer base as they did this quarter it is sure to happen. Additionally, with the dollar falling to new lows and the strength shown in the Asia/Pacific region it is likely that current estimates are low.
There has already been one upgrade in the wake of the report and more are sure to come. Jeffries upped their rating to buy from hold. The consensus estimate if for share prices to rise to $31.61 with a high target of $37.00. Simply based on the consensus estimate there is a potential upside of 30%.
The stock got crushed in the first month of the year, along with the rest of the tech sector, but that was before the strength in earnings was revealed. Our play, buy the April $25 call with a price trigger of $25 per share. As of today's action these options were going for $0.95 per share. Next earnings is in mid May so this position will be closed before then.
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