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Buy Cisco Calls Before Earnings, Goldman Sachs Says

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Feb. 2 (Bloomberg) -- 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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