Cisco Profit to Fall on Switching Weakness

(Editors' note: Updated to reflect previous error in last year's quarterly earnings from 33 cents to 43 cents.)

BOSTON (TheStreet Ratings) -- Cisco Systems (CSCO) is expected by analysts to report a slight increase in revenue Wednesday, driven by strength in its routing segment.

Analysts are expecting Cisco to report a quarterly profit of 38 cents a share, compared with 43 cents a year earlier. Revenue is estimated to increase to $11 billion from $10.8 billion, according to a poll of analysts by Thomson Reuters. Investors are expecting demand for routers to offset weakness in the switching and public-sector divisions.

The following is taken from a first-quarter report published by TheStreet Ratings, an independent-research unit of TheStreet that uses a quantitative model to evaluate stocks.

Net income droppd 17.6% to $1.8 billion from a year earlier, significantly underperforming the S&P 500 and communications-equipment industry.

We rate Cisco "hold," with the primary factors being mixed, some indicating strength, others weakness, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most others.

The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and a generally disappointing performance in the stock itself.

Looking at the price performance of Cisco's shares over the past 12 months, there isn't much good news to report: The stock is down 42%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

>>For upcoming earnings and estimates, see our Earnings Calendar.

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