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Analyst reports: All hail Cisco

Wall Street applauds the networking giant a day after it reported solid earnings and beat analysts' lofty expectations.

Wall Street applauded Cisco Systems on Tuesday, a day after the networking giant reported solid earnings and beat analysts' lofty expectations.

San Jose, Calif.-based Cisco reported fiscal first-quarter net earnings Monday of $1.36 billion, or 18 cents per share, on revenues of $6.52 billion. That's a 67 percent gain from earnings of $814 million, or 11 cents per share, on revenues of $3.92 billion during the same period last year.

Analysts expected Cisco to earn 17 cents per share, according to a survey by First Call/Thomson Financial.

Cisco stock inched up 3.06 percent on Tuesday to $56.81, $1.69 higher than its closing price Monday.

Cisco, one of the best performers during the bull run of the late '90s, supplies data networking products such as routers, switches and remote access concentrators to corporations, universities and governments around the world. Analysts like Cisco for its steadfast reliability, almost always outperforming the most bullish expectations of analysts with a rising stock price quarter after quarter.

From October 1997 to October 1998, Cisco stock increased roughly 60 percent. From October 1998 to October 1999, it increased about 125 percent. And in the five months from October 1999 to March 2000, just before the broader Wall Street drubbing that severely punished technology companies, Cisco stock surged 114 percent.

In a conference call following the earnings announcement on Tuesday, Cisco executives raised the company's expectations for the second quarter of fiscal 2001, saying sequential revenue growth would be in the high single or low double digits. They upped expectations for the company's fiscal year, saying revenue would grow between 50 percent and 60 percent for fiscal 2001.

"Cisco continues to executive very well and demonstrates that it is in a class by itself," analyst Seth Spalding of Epoch Partners wrote in a research note titled, "Yawn...Another Solid Quarter From Cisco."

"Overall, we believe that the fundamentals of Cicso's story are intact," Spalding wrote in a note issued late Monday. "The stock's valuation is still attractive on a relative basis. We therefore still recommend the purchase of Cisco, especially on any price weakness."

Kintisheff Research raised its short-term rating to outperform and upped its fiscal 2001 earnings per share estimate from 76 cents to 80 cents. The six- to 12-month target price is $70 per share.

In a research note issued Tuesday titled "Vote For Chambers Today!" analyst Tsvetan Kintisheff praised Cisco chief executive John Chambers and other members of the company's senior management.

"Management stressed the importance of balance across geographies and business segments as a key factor for avoiding the slowdown that many peers have seen," Kintisheff wrote.

Other investment firms followed suit with strong ratings on Tuesday.

Chase Hambrecht & Quist, Thomas Weisel Partners and Deutsche Banc Alex Brown maintained their "strong buy" ratings.

SunTrust Equitable raised its rating of Cisco to "strong buy" and issued a 12-month target price of $76 per share. Gerard Klauer reiterated a "buy" rating and 12-month target price of $80 per share.

Credit Suisse First Boston reiterated its "strong buy" rating, and analyst Lissa Bogaty raised her 12-month target price to $87 from $85 per share.

But praise was not universal.

Dresdner Kleinwort Benson reiterated its "buy" rating Tuesday but cut its 12-month price target to $61 from $90 per share.

Sanford C. Bernstein analyst Paul Sagawa explained that Cisco's numbers suggested a slowing in the company's carrier business of sales to telecommunications companies. "In a sense we've climbed the mountain with Cisco and now we're at the pinnacle looking down," he said.

On Oct. 30, Lehman Brothers analysts Tim Luke and Mark Sue drafted a less-than-enthusiastic report about the data networking giant. The duo maintained their "buy" rating but slashed their 12-month target price from $90 per share to $60 to $65 per share. Although they were generally upbeat about Cisco's management and future products, they were concerned about "a backdrop of potentially slowing growth" among the Internet and telecommunications providers that buy Cisco products.

The analysts, who had not issued a revision to that estimate by Tuesday morning, said Cisco will trade around 65 times calendar-year 2001 earnings estimates of 85 cents to 90 cents per share.