Wednesday, May 11, 2005

Schaeffer on CSCO

12:02 PM
Cisco Systems Reverses Course Mid-MorningTechnology titan Cisco Systems (CSCO: sentiment, chart, options) reported better-than-expected earnings last night after the market close, earning 23 cents per share versus the consensus estimate of 22 cents per share. What's more, CSCO reported quarterly revenues of $6.19 billion versus the consensus estimate of $6.15 billion. Adding to the positive news for the stock, Raymond James upgraded shares of CSCO from "market perform" to "strong buy" on the positive earnings surprise.
The stock opened modestly higher this morning, rallied through mid-morning and has since reversed course and was trading just a nickel above break-even at last check. One reason for the abrupt change in direction could be the lack of buying power, as measured by the abundance of optimism in CSCO's sentiment backdrop. Before this morning's upgrade, there were 21 "buy" ratings, nine "hold" ratings, and no "sell" ratings on CSCO. Short sellers have not made large wagers against CSCO either. Short interest declined by nearly 16 percent over the most recent reporting period and the short-interest ratio now stands at a sparse 0.87 days. The fact that the sentiment is so skewed to the optimistic side likely indicates most market players have already allocated their available investment capital to CSCO. Therefore, the most likely direction for the shares in the future is lower, as some investors liquidate their positions and there are not many buyers to step in and purchase the shares.

-Posted by Kristin DePlatchett

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