Zeev's Turnips Patch-No Politics (ZEEV)

[marginnayan]

CSFB on Cisco

• Revenue guidance was cautious, as we expected, but Cisco
(CSCO, $12.07, Buy, $14) delivered a big upside surprise on the
gross margin. We are cutting our revenue number even more,
but raising EPS. We are maintaining our $14 price target.

• Thesis same. We believe CSCO will outperform the market on
higher long-term revenue growth and expanding margins, BS and
CF metrics, but P/E could remain under pressure on lowered
revenue expectations.

• For quarter, revenues up 0.5% sequentially, below our estimate
of 1.3%. Gross margin 67.7% vs. 63.1% last quarter and our
estimate of 62.5% adding $0.02 to EPS, to $0.14 vs. $0.12 estimate and $0.11 last quarter.

• We think Street will lower revenue estimates, as we had
previewed, and P/E could be re-thought, but we have to give
Cisco credit for a stunning 26.8% operating margin.

• Although we just lowered our EPS estimates, we now are raising
them because of the margins, but we are lowering our revenues
again. We still have year-over-year revenue growth ramping to
9% (was 10%) by the end of FY2004, but CY2003 revenue
growth goes to 4.5% from 7.3%, although EPS goes to $0.63 from
$0.58.

• Announced big share buyback, which should be neutral to
accretive to our estimates.

• We see two overhangs subsiding: CFO plans to retire next May,
not near term. Company cites considerably lower options
expense.