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UPDATE: What Will Cisco Reveal About Economy?

As we first told you last week, investors are eager to hear from Cisco on Wednesday. The maker of routers and networking gear is widely considered a barometer for corporate tech spending.

AP


And what they say will likely move the tech sector if not the entire market.

When they reported results last time around, Cisco said that sales seemed to be bottoming out after falling last year. This quarter, analysts and investors will be looking for news that things have started turning upward again.

CEO John Chambers keeps describing the recession as a chance for the company to grab market share and expand into new categories.

Meanwhile, the stock has already been on a tear, rising from just above $18 on July 9 to more than $22 this week.

Analyst Insights

Earlier in the month, Baird upgraded Cisco to "outperform" from "neutral" on an improving demand outlook and promising new product cycles. Analyst Kenneth Muth said he believes there is more upside than downside risk and raised his price target to $26 from $20.

Also, Credit-Suisse analyst Paul Silverstein raised his rating from “Neutral” to “Outperform,” earlier in the month and increased his price target to $25 from $22.

Simon Leopold at Morgan Keegan said "evidence of recovery, no matter how muted, could help the stock." He noted that the stock is trading at about 16 times its estimated earnings for next calendar year, giving it an "interesting" valuation.

Even the more cautious analysts see long-term demand for switches and routers, remaining solid.

Increasing use of the Web for downloading videos, uploading photos to share with friends, and the shift of more business processes like accounting and sales to online systems, mean both large companies and phone carriers will continue upgrading their networks in the long term, they said.

Heading into earnings, what’s the trade?

I’m not pounding the table as a buyer but if you already hold the stock I think you can hold the stock into the quarter, says Broadpoint Amtech analyst Mark McKechnie.

You’ve got to make a decision whether you like the market or not to trade this stock, counsels Guy Adami. If you think the S&P is heading higher, then Cisco valuations are fair, he explains. However, if you think the market pulls back then Cisco is probably ahead of itself and I'd get out.

What do you think? We want to know!



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