Update Cisco Systems (CSCO)

11/05/2009 12:55 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Cisco Systems (CSCO) reported earnings of 36 cents a share for its fiscal first quarter of 2010 after the stock market close on November 4.

Both earnings—by 5 cents a share—and revenue—by $126 million—beat the consensus Wall Street estimates. However, revenue fell by 12.6% from the fiscal first quarter of 2009.

But the big news wasn’t the numbers from the just ended quarter but CEO John Chambers’ confirmation of his optimistic projections when the company reported fiscal fourth quarter earnings in July. Then Chambers had said Cisco saw the fourth quarter as a tipping point that marked a transition from falling sales to future growth.

This quarter he not only said that results confirmed that projection but backed it up by announcing very concrete actions.

First, after laying off 3,500 workers over the last four quarters, Cisco would start hiring again, albeit in a very targeted way that focuses on the company’s newest and fastest growing markets. And second, the company’s board of directions authorized an additional $10 billion to buy back the company’s shares. That’s on top of the $13.1 billion for share purchases that remains from an earlier authorization.

So far on the morning of November 5 Cisco’s results have helped send the overall market upwards. For why stocks might have moved out of a correction and into a consolidation phase see my post from November 4 http://jubakpicks.com/2009/11/04/have-stocks-moved-from-dip-to-consolidation-already-and-is-the-next-move-up/ .

This quarter investors could see the tipping point in the company’s order book. Total orders were still down by 7%-9% from the fiscal first quarter a year ago. But that’s a huge improvement from the 30% year to year decline the company has cited in recent quarters and shows that orders are actually picking up at Cisco. In the quarter enterprise orders—that’s orders from big corporations—were ahead 10% from the fiscal first quarter a year ago

In the conference call the company projected that for the fiscal second quarter that ends in January 2010 revenue would show a year to year increase or 1% to 4%. That doesn’t seem like much but it would mark Cisco’s return to revenue growth. That kind of growth translates into revenue of $9.2 billion to $9.45 billion. The Wall Street consensus had been for revenue of $9 billion.

As of November 5, I’m tweaking my target price higher to $29 a share by June 2010 from the previous $28 by that month.

Full disclosure: I own shares of Cisco Systems in my personal portfolio.
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