Buy Cisco Calls Before Earnings, Goldman Sachs Says

Investors should buy Cisco Systems Inc. options to take advantage of potential gains when the largest provider of computer networking gear reports second- quarter earnings next week, Goldman Sachs Group Inc. said.

Equity derivatives strategists John Marshall and Maria Grant recommended a call spread, buying one Cisco February $22 call for every two February $23 calls sold. Telecom equipment analyst Simona Jankowski expects the network-equipment maker to post profit in line with estimates on Feb. 9 and give a better- than-projected forecast for its third quarter. San Jose, California-based Cisco rose 0.7 percent to $21.62 at 4 p.m. in New York.

“Our analyst thinks that sentiment has moved too negative into the quarter and guidance is achievable,” the strategists wrote in a note today, citing Jankowski. “With Street estimates below Cisco’s guidance, a ‘not as bad as feared’ quarter is likely a positive catalyst for the stock.”

Cisco hasn’t missed profit estimates since at least 2005, data compiled by Bloomberg show. Analysts forecast the company will report earnings of 35 cents a share excluding some items, according to the average of 37 estimates in a Bloomberg survey. Jankowski has a ‘neutral’ rating for the network-equipment maker and a $23 price forecast.

The call spread profits if the shares close between $22.12 and $23.88 at expiration on Feb. 18, the note said. Maximum profit is achieved if Cisco closes at about $23, Bloomberg data show.

To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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