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Cisco Needs More Love

Written By Brian Hicks

Posted May 11, 2007

Networking giant Cisco Systems released earnings on Tuesday, and as usual, they jacked another one right out of the park. In fact, it wouldn’t surprise me if they were still looking for the ball. That’s how good they were.

But despite this monumental performance, the company got no love at all on the Street. Investors sold stock off hard in the after hours and continued to sell throughout the next day, which to be honest made no sense at all to me.

I mean let’s face, this company gets no respect. It delivers the goods quarter after quarter after quarter, but the analysts are never really ever satisfied.

Maybe there’s something in the water. It sort of reminds me of the way Yankee fans treat Alex Rodriguez.

I mean, c’mon now, the guy puts up the same gaudy numbers season after season, but to the fans in New York, it’s never really enough. Instead they call for his head at every opportunity, which is the height of absurdity. The guy’s arguably the greatest shortstop ever.

But despite those Hall of Fame credentials, A-Rod practically has to go begging for some respect. It’s mystifying, really, which is exactly how I feel about Cisco’s big selloff on Wednesday.

When it comes to publicly traded companies, Cisco Systems is in a league of its own, just like A-Rod.

Tuesday’s earnings release was no different. Like I said before they crushed it–profit was up 34% for the quarter.

The networking company reported earnings of 34 cents per share, minus special costs including stock-based compensation. The performance topped its year-ago results by 17%. Analysts polled by Thompson Financial were looking for 33 cents.

Sales rose 21% to $8.9 billion, also topping the analysts, who were expecting sales of $8.73 billion. It marked the ninth consecutive quarter that the company beat the Street, and it’s a trend that will likely continue.

The company said it expects further sales growth of 15% to 16% this quarter. Given the enormous size of their revenues, that’s impressive.

"From a Cisco perspective," said Cisco CEO John Chambers, "the key take-away is that momentum remains very strong. Our execution is right on target," he added in a conference call with analysts.

Spending on new networking gear continued to drive sales as a wave of businesses looked to converge their old, disparate networks into single platforms that carry voice, video and data.

And it’s no wonder, since the new services are the ultimate bandwidth hogs.

These new traffic demands once again drove much of the company’s sales. Just like prior quarters, cable companies and telcoms continue to gobble up the new gear that is so vital to keeping all of those data packets running smoothly.

But it’s not just gear that made the quarter for the company. The recent acquisition of WebEx Communications and new sales of the TelePresence video conferencing system will likely add another 2% to future sales. That bodes well for Cisco maintaining its consecutive streak of winning quarters.

"We are more optimistic about our expectations than we’ve been for some time," said Dennis Powell, Cisco’s chief financial officer. "And we believe that we’re going to continue to see solid growth on a global basis."

Yet for all this stellar performance and its push into promising new markets, the company was roundly booed on Wednesday. The Street simply wanted more.

The good news here is that eventually the Street will have to come around on this one. This company is simply too good. In fact, it’s a Hall of Famer, just like Alex Rodriguez.

All it needs is the love that it deserves. The selloff was overdone.

Wishing you happiness, health, and wealth,

Steve Christ, Editor