Shares of Cisco Systems have languished over the past couple of years, as revenue growth at the networking giant slowed. But the company's latest quarterly earnings report could change investors' perceptions of company's prospects -- and its stock.
The stock (symbol CSCO), which is down more than 30% since January 2004 -- and 75% from its all-time high, set in 2000 -- surged 7% on Wednesday. The advance came after the release of better-than-expected earnings for the second quarter of Cisco's fiscal year.
Perhaps more important than the profit surprise, however, was word of surprisingly strong orders for Cisco's networking gear. "Order growth was the best the company had seen on over a year," says Oppenheimer analyst William Becklean. Increasing orders bode well for revenue momentum in the coming quarters.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Cisco had previously forecast that revenues would improve in the second half of its current fiscal year, which ends in July. But investors were skeptical, says SG Cowen & Co. analyst Christin Armacost. Now, she says, strong orders have set the stage for better growth, and the stock should climb higher over the next year, in her view.
Becklean also found the latest report encouraging and upgraded the stock from neutral to buy on Wednesday. More than likely, he says, he'll be raising his earnings estimates for Cisco in the coming months. "We believe the stock has made a bottom," he says.
Cisco dominates the market for routers, switches and other data networking equipment, and many analysts say that, given its increasingly broad range of products, including voice over Internet protocol (VoIP) and other advanced technologies, it's likely to continue to gain market share. It's also on the verge of completing its purchase of cable set-top maker Scientific-Atlanta. The deal is Cisco's largest acquisition ever, and Armacost says it should help make the company's offerings more appealing to service providers that are developing video-capable next-generation networks.
The stock, at $19, sells for 17 times the $1.11 per share that analysts estimate the company will earn in the 12 months ending January 2007.
--Lisa Dixon
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
Should You Renew Your CD?With rate cuts impacting earnings, we examine if now is a wise time to renew CDs.
-
7 Ways to Plan Now to Save on Medicare IRMAA Surcharges LaterUnderstand the critical two-year lookback period and why aggressive planning before you enroll in Medicare is the most effective way to minimize IRMAA.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
Dow Dives 797 Points as Government Opens: Stock Market TodayThe process of pricing and re-pricing realities old and new never stops, and next week promises to be at least as exciting as this week.
-
Dow Climbs 327 Points, Crosses 48,000: Stock Market TodayMarkets are pricing the end of the longest government shutdown in history – and another solid set of quarterly earnings.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
