Why It's Too Early to Walk Away From Cisco by Bill Alpert
Summary: Cisco Systems' (CSCO) share price fell 8% last week hitting $26.70 by Friday, following a demotion to Neutral from three brokerage firms: Banc of America Securities, Prudential Equity Group, and Merrill Lynch. Merrill Analyst Tal Liani confirmed that no funny business had been unearthed at Cisco, and that the company's core business continues to thrive. Cisco is poised to provide video-transmission solutions to such needy giants as AT&T (T), and has invested sales efforts in convincing oil-rich countries to develop their national network infrastructure. Liani expects Cisco to beat his $1.6 billion earnings (or 26 cents a share) projection for January, a figure representing 15% growth compared to January, 2006. Yet Liani has doubts as to Cisco's margin leverage, with a sizable 29% operating profit margin. He says Cisco is riding high with its CRS-1 router as the base of telecom networks, but thinks it's best to jump before the wave crests. Cisco Spokesperson Heather Dickinson expresses confidence for future growth: "Our expectations for the future [are] based on our belief that the network is the platform for all communications and IT." Internet video traffic could grow exponentially causing gear upgrades across the net. Barron's author Bill Alpert sees no need to jump off the boat yet.
Related: Joining Prudential and Bank of America, Merrill Lynch Downgrades Cisco, Cisco's Core Markets 'No Longer Accelerating'