The Global Demographic Tailwind

[DewDiligence]

Cisco’s Slide Offers Opening for Investors

[CEO John Chambers said FY3Q10 was probably the best quarter in the company’s history (#msg-50109571), but the stock sold off almost 5% yesterday. Go figure.]

http://www.forbes.com/2010/05/13/cisco-systems-technology-markets-equities-networking-computer.html

›by Carl Gutierrez
05.13.10, 4:45 PM ET

Cisco Systems' fiscal third-quarter results left the market confused, leading its stock to slide Thursday. But the drop presents a buying opportunity for investors as the computer networking equipment maker is well positioned for strong broad-based growth.

"Things look very solid, fundamentals are improving, and the large-cap technology company has more cash than Intel and Google combined," says Brent Bracelin, analyst at Pacific Crest Securities, "and the company right now with the sell-off today is essentially trading at 13 times earnings for 2011."

Bracelin adds that he considers the sell-off a great opportunity for the long-term investor in Cisco Systems. "Our thesis is we have a mulit-year opportunity in front of us," he says. "If you look at the large installation-base out there, that's five-plus years old and in the next six to 24 months a lot of that equipment will need upgrading."

Despite posting stronger-than-expected results, the computer networking equipment maker saw its shares slide 4.5%, or $1.21, to close at $25.53, Thursday in the wake of the report’s release on Wednesday. There wasn't one metric or comment that led to investor skittishness, Bracelin says, instead the only confusion is the benefit of the extra week they had in the April quarter. [CSCO is one of a few companies in the S&P 500 that has a 53-week fiscal year every few years.] "Investors were concerned if the extra week would be a potential headwind and some were left the impression that demand is potentially slowing for Cisco, when that’s not the case," he says.

It wasn’t as if Cisco Chief Executive John Chambers was shy about his enthusiasm when the company issued its results. “We witnessed a return to strong balanced growth across geographies, products and customer segments that we haven't seen since before the global economic challenges began,” he said upon the release. “It is clear that our game plan for how to handle economic downturns is hitting on all cylinders.”

For the quarter, the company reported a 69.2% jump in earnings to $2.2 billion, or 37 cents per share, from $1.3 billion, or 23 cents per share, reported in last year's corresponding period. Excluding one-time charges and other costs, the company's earnings reached 42 cents per share. Wall Street analysts, on average, had expected earnings of 39 cents per share. Sales meanwhile rose 26.8% to $10.4 billion, from $8.2 billion.

Cisco's drop, though, wasn't unique to the technology sector, as fellow firms Hewlett-Packard slid 1.5%, Microsoft 0.7%, Apple 1.7% and IBM 0.7%. Google proved to be an exception, as it rose 1.1%. The Technology SPDR exchange-traded fund fell 1.3%, or 31cents, to $22.88.‹