Should You Take a Chance With Cisco Systems?

With shares of Cisco Systems (NASDAQ:CSCO) trading around $24, is CSCO an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Cisco Systems designs, manufactures, and sells Internet protocol-based networking and other products related to communications, and provides services associated with these products and their use to information technology industries worldwide. The company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate, and collaborate. Cisco operates in five segments: United States and Canada, European markets, emerging markets, Asia Pacific, and Japan.

Cisco Systems gave a forecast for fourth-quarter profit and sales that topped analysts’ estimates, as Chief Executive Officer John Chambers seeks to restore growth and prepare the company to meet new challenges. Orders in the U.S. are climbing on demand for networking machines to handle mobile-data traffic. Revenue in the current period through July will be $12 billion to $12.3 billion, based on the company’s forecast for a drop of 1 percent to 3 percent. Analysts were projecting, on average, sales of $11.8 billion. Chambers, CEO for 19 years, is working to turn around the world’s largest networking-equipment maker before handing it over to a successor. He cut the company’s multiyear forecast in December, after exiting consumer businesses, reducing staff  and restructuring management. Network upgrades, driven by mobile devices, are making up for weaker demand as companies build their own equipment, using software to buy fewer machines.

“This was a classic case of low expectations from the Street; sentiment was in the negative,” said Chris Bertelsen, chief investment officer of Sarasota, Florida-based Global Financial Private Capital, which owns Cisco shares. Revenue in the fiscal third quarter, which ended April 26, declined 5.5 percent to $11.5 billion, the company said in a statement yesterday. That beat the average analyst estimate for $11.4 billion, according to data compiled by Bloomberg. Profit, excluding items, was 51 cents a share, exceeding a projection for 48 cents.