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Contributors: Douglas McIntyre Jon C. Ogg

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Saturday, September 09, 2006

Weekend Edition: Cisco Not Rallying on Analyst Day

"Did they price in all the good news that fast?"

Cisco Systems (CSCO) does not feel any more cautious since its last earnings release. There hasn't been enough time to see the world really change, but you would think the street would be at least somewhat happy to see this after coming back from holiday.

The company today has reaffirmed its 10% to 15% annoual growth, and maintained its prior quarterly and fiscal guidance today at its analyst conference. It maintained its 15% to 20% fiscal growth this year in revenues due to the Scientific-Atlanta merger. As fas as ex-Scientific-Atlanta revenues, Cisco's revenue will rise between 10% and 15%. For Cisco's Q1 ending in October the company forecast growth of between 19% and 21% including Scientific-Atlanta, which translates to about 11% to 13% without those sales.

The company also said it will actively return funds to shareholders. They will do this by remaining active in the share buyback plan, and its CFO Powell said a dividend is more of a "WHEN" rather than an "if."

As far as its market share, it plans to keep retaking what it lost. According to the webcast, the company has turned the corner in gaining market share in routing, and it will continuously boost share in the next several years.

Oddly enough, the shares are not really responding. CSCO stock is trading down almost 1%, or down $0.20, at $21.90. While CSCO has been regaining and taking share, many smaller optical and equipment companies have been hamstrung. This morning Finisar (FNSR) gave up over 10% after lackluster earnings, and recent reports out of JDS Uniphase (JDSU) and Ciena (CIEN) were less than well received. It looks like the company is not that worried that Juniper (JNPR) will get back off the floor and it has so far kept the little guys like Extreme (EXTR) and Foundry (FDRY) relegated to a "tolerable but unwanted step child" status. As long as it is able to keep H3C, the 3Com and Huawei router venture, at bay then the company is in one of teh best competitive positions it has been in for years.

Doug ran an discussing CEO Chambers selling some of his shares, so perhaps that has kept a lid on some of the shareholder optimism so far. You can probably expect many analyst calls doing "updates"and "reiterations" in the next 24 hours as a result of this analyst meeting.

In this environment, you would have thought that a "good news" would have been enough. It may be the "Sell the news" trade that is prevailing since the stock has recovered from just over$17.00 before earnings to a recent level of $22.00 before the analyst meeting. The recent chart has also been giving some overbought readings, so maybe it just needs a breather.

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