4 Reasons Why You Should Bet on Cisco

Just a few months ago, declining sales, earnings and margins caused many
analysts and investors to lose faith in networking giant Cisco (NASDAQ: CSCO ).
Wednesday's stronger fiscal first-quarter earnings should win back some of
that confidence. Cisco sales rose by nearly 5% in the first quarter to $11.3
billion with most of that gain coming in the month of October. Not counting
restructuring-related costs, the company's earnings totaled $2.3 billion (43
cents per share), down from $2.4 billion (42 cents) for same quarter last year.
Despite the year-over-year slip in profit, CSCO still beat Wall Street earnings
estimates of 39 cents per share on $11 billion in revenue. The company's
second-quarter outlook also was higher than expected, with CSCO forecasting
earnings per share of 42 to 44 cents analysts had estimated an EPS of 42 cents.
Cisco's revenue estimate of $11.1 billion to $11.3 billion is in the same
range as most analysts predicted. Those solid earnings suggest the much-needed
course correction the company made earlier this year is starting to yield
results. When Cisco announced its second-quarter earnings slip nine months ago,
many investors complained that the networking innovator had lost a step and now
was struggling to keep pace with the next generation of Internet growth. The
company apparently got the message and dove at once into an extreme makeover.
Here are four reasons investors should believe in Ciscos comeback: Five
Foundational Principles CEO John Chambers, who started the effort to refocus the
company and save $1 billion, is committed to five foundational principles he
feels are essential to the company's success: Growing its core switching,
routing and services business. Addressing collaboration, where quarterly revenue
grew 12%. Continuing to grow the high-potential data center market. Helping
telecom and other service providers better meet video demand. Focusing on
architectures for business transformation. Unified Computing Focus One of
Cisco's biggest market opportunities is its new converged data center
platform, dubbed Unified Computing System. UCS is designed to make it easier and
quicker for customers to bring up new services and applications in physical
server, virtualized data center or cloud computing environments. Orders for the
system grew by a whopping 122% in the first quarter; revenue was up 116%. Leaner
and Meaner As part of its extreme makeover, Cisco jettisoned 12,900 employees
and shuttered 10 businesses including its $590-million Flip consumer video
camera line, which had turned out to be a flop. It also sold off a manufacturing
plant in Mexico and boosted investment in other mission-critical areas. Those
changes cost the company $772 million in the fourth quarter. Solid Fundamentals
With a market cap of $94.8 billion, CSCO has a price/earnings-to-growth ratio of
1, meaning that the stock is fairly valued. With total debt of $39.8 billion and
total assets of $87 billion, Cisco pays a current dividend yield of about 1%.
The company's exposure to Europe as well as its debt-to-equity ratio of 35
raise an eyebrow, so continue to keep one eye on CSCO's financials and the
other on how the euro zone fiasco plays out. The stock dropped with the rest of
the market on Wednesday by nearly 4%. But at $17.61, the stock still is trading
more than 32% above its 52-week low of $13.30 in August. As of this writing,
Susan J. Aluise did not hold a position in any of the aforementioned stocks.