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Earnings? Here Are 3 Other Reasons to Buy Cisco: Analyst

Wednesday, 9 May 2012 | 2:24 PM ET
AP

Cisco Systems, the world’s largest maker of computer networking equipment, is trading at its lowest level in close to four months.

Some investors think that’s reason enough to buy now, and are hoping for a pop after tonight’s third-quarter earnings results.

UBS analyst Nikos Theodosopoulos told CNBC’s “Squawk on the Street” he thinks they’re right to get in now — for three key reasons.

One: price. “The valuation is compelling,” he said. “The stock is trading under 10 times forward earnings, which is a big discount to the market.”

The S&P 500 indexis currently trading at more than 11 times forward earnings — meaning investors are paying 11 times what the S&P is expected to return over the next twelve months.

Two: margins. “We think the company is in the midst of a turnaround, in terms of internal execution on profit margins,” Theodosopoulos said. This, in part, is based on his view that Cisco is taking market share from its closest competitor, Juniper Networks , which recentlyreported weak quarterly results.

Cisco Dip: Buying Opportunity?
Cisco is trading at its lowest level in close to four months. Is this dip a buying opportunity? Nikos Theodosopoulos, analyst at UBS, weighs in.

Three: spending. “Our surveys suggest Cisco is gaining more momentum in the market with end customers,” he said. “We think it will lead to an improving spending trend over the next several quarters.”

These forward-looking factors, however, do not parlay into out-of-the-park results tonight, Theodosopoulos said. At best, “they’ll be okay.”

Other networking companies saw weakness in the service provider market last quarter, and he expects a similar outcome for Cisco .

“I think Cisco started out their quarter a bit soft, so I don’t think tonight’s results will be phenomenal,” he concluded.

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Disclosures:

The analyst covering this company, a member of his or her team, or one of their household members has ownership positions in Cisco and Juniper Networks. Within the past 12 months, UBS Securities has received compensation from Cisco.

Disclaimer
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Follow Jennifer Leigh Parker on Twitter @jparker741 .

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