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Cisco Systems, Inc. (CSCO) Heads to Vegas After Announcing Layoffs

Sentiment remains upbeat toward troubled Cisco Systems, Inc. (NASDAQ:CSCO)

by 8/15/2014 11:45:30 AM
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Cisco Systems, Inc.'s (NASDAQ:CSCO) better-than-expected fiscal fourth-quarter earnings results and cost-cutting measures failed to spark enthusiasm around the Street. Specifically, the company's reported a profit of 55 cents on sales of $12.4 billion earlier this week, and announced it will lay off roughly 8% of its workforce, a move CEO John Chambers said is strategic.

Chambers explained the restructuring is a result of "realigning resources to look where our growth opportunities would be," amid a shift to "new areas of technology." As a part of this realignment -- and despite an emphasis on cost cutting -- Chambers and 20,000 CSCO employees will head to Sin City later this month for a three-day educational seminar. According to Chambers, the goal of the training is for Cisco's sales team to learn how to "take a C.E.O.'s top five business objectives and turn them into outcomes."

As touched upon, though, these announcements have not been well received -- perhaps due to a tepid current-quarter outlook and looming $700 million restructuring charge -- with the shares off 2.8% from Wednesday's close to trade at $24.49. This dreary price action highlights CSCO's technical struggles in recent months, though, with the shares churning between $24 and $26 since mid-May.

Nevertheless, sentiment around the Street reveals a glass-half-full approach toward the tech name. In the options pits, for example, the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 3.42 ranks in the 82nd percentile of its annual range. Simply stated, calls have been bought to open over puts at a faster-than-usual clip in recent months.

Elsewhere, roughly 62% of covering analysts maintain a "buy" or better rating on the stock, and the consensus 12-month price target of $26.39 stands in territory CSCO hasn't charted in more than a year. What's more, just yesterday, the security received no fewer than five price-target hikes, including a $3 adjustment to $33 at Cowen and Company. Should Cisco Systems, Inc. (NASDAQ:CSCO) continue to struggle on the charts, an unwinding of this optimism from both option traders and analysts could pressure the shares lower.

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