Cisco to Plunge on the Release of NSA Spying Tools, 7% Layoff

[This market update and analysis is taken from: FSM News.]

The stock of Cisco Systems Inc. (NASDAQ: CSCO), the largest networking company in the world, is poised for a significant decline due to the mysterious release of spying tools created by the US National Security Agency’s elite group of hackers and the massive 7-percent job cuts.

Impact of NSA Hacking Tools Leak on Cisco

A cache of highly sophisticated hacking tools codenamed Buzzdirection, Epicbanana, 

Egregiousblunder, and Extra Bacon, among others appeared online just recently, and Cisco products were deemed vulnerable to these. ExtraBacon particularly targets Cisco Adaptive Security Appliance firewall.

This latest news can be considered as an international scandal as the multibillion dollar tech corporation’s networking equipment are used by countless of critical state agencies and large companies all over the world. With these hacking tools leaked out into the internet for all to see, anyone from a basement hacker to a professional spy could gain access to them now. Until these cybersecurity flaws are patched, many computer systems, especially those utilizing Cisco products, may be in jeopardy.

Having said that, we believe that the CSCO stock is set to plunge. As shown in the chart below, the company’s stock is trading in the red for two consecutive sessions. As of the time of writing, the stock is trading at $30.72, down by 1.29 percent or 0.40 points. Our analysis shows that if Cisco breaks down the support at the $30.12 level, it could drop much further.

Cisco: A Layoff Machine

In addition to the leak of NSA hacking tools, reports that Cisco will layoff 5,500 employees or 7 percent of its total workforce also casted a grim shadow over the company. CSCO shares tumbled by 1.5 percent during after-hours trading due to this restructuring move, despite reporting fourth quarter earnings results that beat estimates.

On August 14, 2014, the networking corporation also reduced its workforce by 6,000 or around 8 percent of its global workforce despite posting a profit growth of 18 percent. After the announcement, CSCO shares traded nearly 3 percent lower as shown in the chart below.

During the same period in 2013 (August 14, 2013), the company stunned the tech industry when it also announced job cuts of 4,000 positions, even though it managed to top the analysts’ forecasts for that quarter. The result of this move is also a decline in Cisco’s stock.

(Chart taken from Yahoo! Finance)

Basically, every summer starting 2011 to 2014 and then this 2016, the multinational tech giant reveals massive reductions in the workforce. (July 2011= job cuts involving 6,500 employees; July 2012= a reduction of 1,300 positions.)

In general, when companies implement massive layoffs, it typically suggests weakness. With this, it is unsurprising that the company’s stock is moving to the downside each time it announces massive layoffs. Aside from serving as an indicator of weakness, some corporations also execute job cuts in order to minimize their expenses and increase revenues.

According to Adam Cobb, a management professor at Wharton, “Layoffs may look good on paper because they have an immediate effect on costs. Yet in reality there are a lot of costs that layoffs impose on firms that might not show up on an income statement quite as clearly.”

In short, some companies implement this as a strategy to respond to short-term pressures of ramping up profits, achieving earnings targets and making next quarter’s number.

Future Outlook on Cisco Stock

The recent online leak of NSA hacking tools, including one that specifically targets Cisco ASA software, coupled with the substantial reduction in the workforce should lead to a further decline in the networking company’s stock. Having said that, a Sell position is definitely recommended.

Source: www.fsmnews.com

Oil Prices Rally Over Output Freeze Calls

On Monday, oil futures traded higher as members of the Organization of the Petroleum Exporting Countries signaled for another probable discussion with the oil kingpins to reduce production.

As the over glut supply concerns persist, speculation arose in the market that the OPEC was planning to convince the major oil kingpins to cut their respective output.

Matt Smith of Clipper Data noted that OPEC members, including Venezuela, Ecuador and Kuwait are said to be behind this latest reincarnation. However, Mr. Smith was likely not convinced by the new effort of the members of OPEC.

“But just like previous endeavors, it seems doomed to fail, given key OPEC members (think: Saudi Arabia, Iraq, and Iran) persist in their battle for market share, ramping up exports apace.”

Meanwhile, aside from the glut supply concerns, the ramp up of oil drilling in the U.S. added to the factors which push the output even higher.

Based on the records of the Baker Hughes, the oil rigs operating in the U.S. met its highest since March. The data came after the rally of dollars over the strong job data last Friday.

Brent futures was up by 7 cents to change $44.34 per barrel while the U.S. West Texas Intermediate crude futures advanced 10 cents to $41.90 per barrel.

On the other hand, the demand for oil remains strong since 2015 and has continued for the last two quarters of 2016. The weekly report of the U.S. stockpile data would be closely watched by the oil experts alongside with the supply and demand levels released by the International Energy Agency.

In China, the trade balance surplus last July came at $52.31 billion higher than the estimated $47.6 billion. The imports decreased 12.5 percent, while exports lost 4.4 percent.

An analyst forecasted a possibility of a drop of demand between 1.1  percent to 1 percent from the second half of the year to the start of 2017 as the oil market digested the domino effect brought by Brexit. “In July following the UK Brexit vote, the IMF downgraded global growth by 10 basis points (bp) in 2016 and 20 bp in 2017. This has negative implications for demand.”

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Pfizer Beats Estimates over Upbeat Sales of Newer Drugs

American global pharmaceutical corporation Pfizer surpassed the forecasted profit of the market analysts on its recent second quarter earnings report. Due to the significant contribution of sales of the newly developed drugs, Pfizer posted revenue of $13.15 billion.

Advancing for almost 11 percent, the pharmaceutical company managed to beat the expected $13.01 billion declared by the analysts. Driver of this growth was the upbeat sales of the generic medicines which accumulated $6.04 billion, increasing for almost 15.7 percent.

Adding to this, the company had $7.11 billion total sales of the array of patent-protected drugs. This was in-line with the acquisition of the Hospira which had a total sale of $1.14 billion from its wide selection of drugs and equipment primarily used in the hospitals.

Moreover, Pfizer’s Ibrance made $514 million, beating the expected $496 million and almost three times higher than the $140 million from the same period in 2015. The company also exceeded the 2 cents per share concluded by the analysts from its cancelled transaction with Allergan when it announced 64 cents per share.

However, the total net income of Pfizer was down by 33 cents to $2.02 billion. The pain medicine Lyrica fell short from the expected $1.16 billion as it earned $1.05 billion while Prevnar vaccine gained $1.26 billion lower than the forecasted $1.58 billion.

Most of the investors kept their attention on the speculated split up of the company. Based on reports, Pfizer has been considering dividing the corporation into a research-driven treatment sector and to an older products specialist sector.

Pfizer Recent Acquisition

Recently, Pfizer completed the $150 million deal with Gene Therapy Firm Bamboo to expand the influence of the pharmaceutical company in the biotechnology. Mikael Dolsten, Pfizer’s head of research and development, stated ‘The field of gene therapy research has made tremendous strides in recent years, and we are pleased to be able to further enhance our leadership position in this area through this transaction with Bamboo.”

The company believed that the gene therapy holds the promise of bringing true disease modification for patients suffering from devastating diseases.

Jude Samulski, Bamboo’s chief scientific officer and a co-founder of the company added that recent acquisition represents a significant step toward bringing Bamboo’s portfolio into the clinic and, ultimately, potential new medicines to patients.

Pfizer Stock Performance

As the market watched closely on the earnings report of Pfizer, the shares of the stocks stayed flat at $37.21 moving away from the pre-market loss of 1.23 percent to $36.85. It has a market capitalization of 228.86 billion and a dividend yield of 3.22 percent.

Currently, the stock has a price earnings ratio of 30.57 with consensus price target of $39.07.  Pfizer has a 52-week high of $37.39 and its 52-week low stands at $28.25. It has an average trading volume capacity of 24.47 million shares.

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