Cisco's Impressive Fiscal Q1

By Nestor Solari

Analysts were bullish on Cisco (CSCO) leading up to its earnings release Wednesday, November 5 after the bell (see conference call transcript). Goldman Sachs, Merrill Lynch, and RBC Capital issued a buy rating on the stock within the last week.

Chief Executive John Chambers keeps telling investors that the company plans on achieving 12 to 17 percent long-term revenue growth. But can the world’s largest maker of networking equipment reach this goal? I certainly think so, even with the hiccups in the near term brought forth by the floundering economy.

Cisco’s fiscal first quarter earnings came in at $2.2 billion, or $0.37 per share, compared to $2.2 billion, or $0.35 per share, a year ago. Excluding items, profits were up $0.42 from $0.40, beating the average estimate of $0.39, according to Reuters. Revenue was up 8% percent to $10.3 billion, almost exactly matching what analysts were expecting. Wall Street cannot be too upset with earnings this quarter, even if it represents the company’s slowest growth in 3 years.

What they can be upset about is that the spread of this economic downturn into Europe and Asia is expected to cost Cisco as much as 10% percent in revenue next quarter. JPMorgan thinks that the inability of customers in emerging markets to get credit may cost the tech bellwether about 2% percent off their top line.

Although investors might be questioning the ability of Cisco to hit their revenue target, I am still for this company. Amid the uncertainty and current economic conditions, it is important to stay with market leaders that can maintain their cash flows. The company showed, through its revenue generation this quarter, that it is able to manage its expenses.

Cisco is still in prime position to benefit from any economic recovery, and its cash pile will help to get them through the situation.

Disclosure: The mutual fund the author is associated with is long CSCO