Cisco Systems [NASDAQ: CSCO] is upbeat at the moment, following Q3 earnings that have beat analysts’ expectations. As per the company earnings report, earnings for the quarter that ended on the 27th of April went up by 18% as compared to a similar period in 2018. Revenues are also up by 4%, to stand at $13 billion. The company attributes its strong growth to a strengthening of its security division, which saw a 21% increase in sales. This is a strong indicator that corporates are still spending on tech hardware, in spite of the uncertainties that have been brought about by the trade war with China.
The company also has some good news for investors. The ongoing trade war between the U.S. and China is unlikely to negatively impact on its bottom-line. According to the CEO, they have a 3-pronged strategy for mitigating the impact of the trade war. The first one is to continue communicating with the Trump administration on the impact of the ongoing trade war. Secondly, the company intends to continue optimizing its supply chain. The 3rd one is to adjust prices so as to protect the business’s profit margins from the impact of the trade war. By following through with this strategy, the company believes that increased tariffs won’t have an impact on its profits in the near term.
CISCO is also investing heavily in software, to avoid over-exposure to manufacturing. Though software is yet to gain traction as a revenue stream for the company, it opens up potentially new growth avenues for CISCO going into the future. This further adds to the bullish sentiment around this stock.
From a look at the charts, CISCO is trading in a range along the 100-day MA, but has broken above it, in the last few hours. This could signal to consolidation before the markets open. Based on the positive earnings that the company has reported for Q3, there is a probability that it could break out bullish once the markets open. A bullish breakout from the $52.34 – $52.38 range could have a target of $52.59, which is a key resistance level in the last 24-hours. Looking at the monthly charts, for longer term perspective, CISCO appears to be on a rebound, after hitting a low of $51.30. If its Q3 earnings report are anything to go by, then the next long-term target for this stock could be at $54.28 on the monthly 50-day MA. A push towards this level is supported not just by the stronger earnings, but also by the company’s strategies for protecting itself from the adverse effects of the trade war.
Other factors that could support this stock include a continued strong performance of the U.S markets. As long as the NASDAQ keeps pushing higher, its positive trajectory could act as a source of momentum for strong established brands like CISCO.
It’s not surprising that analysts have a strong view of CISCO. The average analyst consensus is that CISCO is buy. Major analysts like Goldman Sachs have also recently held their perspective that CISCO is a buy.