Cisco Systems initiated with ?accumulate?

08.02.07 - AC Research

NEW YORK, February 8 (newratings.com) - Analyst Henning Wagener of AC Research initiates coverage of Cisco Systems (CSCO) with an "accumulate" rating.

According to AC Research?s research note dated February 7 and published this morning, the company has announced its 2Q06/07 earnings results. In that period, Cisco Systems could improve sales by 27% y/y to $8.44 billion. Net profits could be increased at the same time by about 40% from $1.38 billion a year earlier to now $1.92 billion, or $0.31 per share. Not considering stock options, earnings per share reached $0.33.

The company?s sales and earnings figures were ahead of the estimates, the analyst says. Apart from organic growth, the Scientific Altana acquisition contributed to Cisco Systems? growth. Scientific Altana is the second-largest producer of cable set top boxes in the US. The acquisition made a $639 million contribution to Cisco Systems? sales in the latest quarter. On top of that, the company benefited from healthy demand for network equipment. Many telecom companies bought new equipment for their networks. Internet router sales were also boosted by the telecom providers tending to pool telephone, broadband, and video applications into a single service.

Cisco Systems has projected 19%-20% growth in sales to $8.7-$8.8 billion for the current third fiscal quarter. Considering the rather favourable market environment and the continuing trend for increasing data transfer on the internet, the company is likely to meet this target, the analyst says. At the same time, Cisco Systems is expected to continue its positive business performance over the next few quarters, the analyst adds.

At Tuesday?s closing price of $27.28 and a 2006/2007 P/E ratio of about 20, Cisco Systems? stock still seems to enjoy a rather moderate rating, considering the company?s excellent market position and the continuing high potential for growth. Cisco Systems managed to further expand its already rather strong market position. Therefore, the supplier of network equipment is expected to continue to benefit in the next few quarters from new products such as internet TV and online videos, AC Research mentions. The analyst adds, however, that the growth dynamics will probably abate in the next few years.

AC Research initiates coverage of Cisco Systems with an "accumulate" rating.