Cisco Analysts Weighing On Further Recovery (CSCO)

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Cisco Systems, Inc. (NASDAQ: CSCO) presented a much better earnings report last night than what many analysts were expecting.  It is also clearly being successful with its restructuring program and in its effort to manage a turnaround.  It is still seeking more of the total IT-hardware spending dollars with its move into the data center.  The company even raised its dividend.  So why is the stock not up?

We were frankly shocked to see that margins expanded.  Our thesis in 2011 for the turnaround to work that Cisco was going to have to pursue a lower margin strategy.  Still, this remains above the 60% hurdle.  That would be a dream for most other technology leaders.  To win more business and to stave off competition from lower-price vendors it would only make sense that margins are going to suffer.  So far, its SG&A and job cuts are helping to maintain margins that are also expected to stay high in the quarter ahead.

We have seen two small boutique downgrades on Cisco, but frankly we would give more weight to just pure profit taking.  Cisco shares hit a multi-month high and the turnaround was being factored in.

ISI Group and MKM Partners both removed “Buy” ratings” and assigned news “Neutral” ratings.  We would tend to view this more on share performance than on hurdles ahead.

Cisco shares are down only two cents at $20.43 after having briefly traded under $20.00 earlier this morning.

Cisco could easily go positive or it could close slightly lower.  The consensus analyst price target is $21.71.


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