Ahead of the Bell: Cisco upgraded, shares rise

NEW YORK - Cisco Systems Inc. shares rose in premarket trading Monday after a Credit Suisse analyst upgraded the computer-networking-equipment maker, citing a "steady, modest improvement" in its North American orders and expectations of a big boost in the company's stock price.

Sales in North America make up about half of Cisco's revenue, said analyst Paul Silverstein in a note to investors. He said gains in orders in the company's key enterprise division in North America were making up for ongoing turbulence overseas. Silverstein upgraded Cisco to "Outperform" from "Neutral" and boosted profit estimates through 2010, saying the company's ability to cut costs should make up for an overall slip in sales.

He boosted his 12-month price target on the shares to $25 from $22. That represents a nearly 22 percent increase from Friday's close of $20.51.

In premarket trading Monday, shares rose 2.3 percent, or 48 cents, to $20.99.

For the year ending in July, Silverstein sees Cisco earning $1.32 per share, excluding the cost of stock-based compensation for employees, which matches the average estimate of analysts polled by Thomson Reuters. He expects earnings of $1.34 per share in the 2010 fiscal year, above the consensus estimate of $1.26. That's despite forecasting a drop in revenue, as he says Cisco has in the past been able to quickly cut costs when beset by broader economic slumps.

In its fiscal third quarter, Cisco cut operating expenses by 10 percent from the same time in 2008, Silverstein said.

Last week, the company said it laid off up to 700 people at its San Jose headquarters, on top of 447 jobs cut since February. The company had about 66,560 employees at the end of April. Cisco has said it is trying to find savings of $1 billion in 2009.

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