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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Cisco System

February 5th 2010 Cisco Systems
Nasdaq Symbol:CSCO
Industry: Routers/Servers
Price as of 2/5: $23.70


The markets have entered a correction phase even as earnings keep coming in better than expected. A rally in the U.S. dollar and concerns about European debt have trumped the good earnings reports. Hopefully soon investors will focus on the earnings once again. This week we'll feature a tech titan that reported great results Wednesday night. The stock of the week is Cisco Systems. Cisco was one of the best performing tech stocks from the 1990s thanks to the Internet. Their router and servers act like the old policemen at intersections redirecting traffic where it needs to go. As the world has grown to depend on the Internet so has the importance of Cisco. At the high of the tech boom Cisco was the largest market cap company in the world. Since then a lot has change, but not the importance or dominance of Cisco. Their recent earnings report indicates that business is picking up again which should be good for Cisco shareholders.
As mentioned, Cisco reported earnings of $1.9 billion, or 32 cents a share, from $1.5 billion, or 26 cents a share, in the year-ago quarter. Earnings excluding special items rose to 40 cents from 32 cents, beating Wall Street's average forecast of 35 cents. Revenue for Cisco rose 8% to $9.8 billion, marking the first year-on-year growth since the quarter ended October 2008. Cisco said revenue last quarter grew 12% in the U.S. and Canada, and 16% in Asia Pacific. Sales fell 3% in Europe, but Chambers said the overall improvement was balanced enough to suggest a sustainable recovery ahead. Long term, Chambers also reiterated his revenue growth target of 12 to 17%, and said the company would continue investing to expand the business. "We're hitting on all cylinders," was Chamber's direct quote on the analyst conference call, citing a "dramatic across-the-board acceleration" in the business. Chambers also sounded a bullish note for the rest of the technology industry, predicting a good chance of "solid, sustainable economic growth."
That's all the analysts had to hear to fall in love Cisco once again. Jefferies notes Cisco is enjoying an upturn in its business with orders and revenues accelerating broadly across regions and product lines. Jefferies raised their price target to $30 a share. Piper Jaffray notes Cisco reported an impressive second quarter beat that was only overshadowed by even stronger third quarter guidance and favorable longer-term view. Thomas Weisel notes management continued to convey an optimistic tone. They raised their price target to $28 a share. Currently the Cisco's stock is trading for 15 times earnings and 13 times next years' earnings which starts in July. The stock also trades for 3.8 times sales and 3 times book. The company has $35 billion in cash and $25 billion net of debt. Many investors expect Cisco to pay a dividend which would bolster support to make Cisco a better long term investment.