Cisco Systems: Expecting 25-30% Upside

| About: Cisco Systems, (CSCO)

Cisco Systems (NASDAQ:CSCO) will not capture headlines here in July as June 30th quarter-end companies will release their numbers and guidance going forward. Cisco's quarter and fiscal year ends on July 31st. The company will report on or about August 9th. So why focus on Cisco at this juncture?

Rumors out there in hedge-fund land has it that Cisco will exceed its consensus expectations of $9.28 billion of revenues and earnings per share of $.35. The stories circulating out there is Cisco could top $9.45 billion and earnings of $.37-.38. If this is the case, the fiscal year would finish with earnings of $1.33-1.36 per share, not a bad year. But, let's peel back the onion a bit...

Cisco is seeing massive growth of 40%+ in the Emerging Markets, including India and China. Networking gear is in high demand and Cisco has made its infrastructural investments this past decade to serve the Emerging Markets region. Discussions with top people at Cisco have indicated to me that the region is still at that 40%+ rate or better.

With momentum exiting the 2007 fiscal year, I can easily see earnings per share for fiscal year 2008 at the $1.70 level. Applying a simple 20-22 PE rate would lift the shares to the $35-36 price tag, or a good 25% higher than its Monday closing price of $28.45. The stock is about $.50 off of its 52 week high.

Cisco's product offering is so vast and comprehensive that its principal objective now is for consistent and reliable distribution channels world wide. Broadband opportunities in its Emerging Markets division has a sustainable growth rate for at least the next 3-4 years at the 30%+ rate. With domestic sales growing at around 10%, Europe/Asia at 15%, the emerging markets will provide the incremental growth to its earnings going forward.

Cisco Systems is a buy at this level, using an initial price target of $36.

CSCO 1-yr chart:

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