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Where's the Love for CSCO?

NEW YORK (TheStreet) -- It amazes me that Wall Street still does not fully appreciate the turnaround story that is networking giant Cisco (CSCO - Get Report). Even more disappointing, many analysts do not really seek to understand, but instead carry on the notion that they've got it all figured out.

I will concede that Cisco has indeed made more than its shares of mistakes -- some of which have allowed newcomers like F5 (FFIV) and Riverbed (RVBD) to encroach on its territory and steal some market share. For this, it is clear that Wall Street still carries a grudge. But leading into the company's fiscal third-quarter results and coming on the heels of three consecutive earnings beats, I was optimistic in thinking that it was time to let bygones be bygones. Investors had different ideas.

Q3 Earnings

Cisco continues to be treated by investors as if it were priced to perfection. Case in point, on Wednesday the company reported third-quarter earnings results of 48 cents per share -- topping analysts' estimates of 47 cents. This number represented an increase of 14% from the 42 cents it earned in previous year.

The company reported net income of $2.2 billion or 40 cents per share on revenue of $11.6 billion -- topping net income of $1.8 billion or 33 cents per share for the same period last year. According to estimates, analysts had expected $11.58 billion in revenue. The major concerns for Cisco have always been its ability to execute effectively in the face of economic weakness.

For me, the report served to alleviate these worries as the company demonstrated it is moving in the right direction. But the market saw things a bit differently.

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While dismissing the company's current performance, investors latched on to its guidance. The company said that fourth-quarter earnings expectations were going to arrive in the range of 44 cents to 46 cents per share on revenue growth of 2.5%.

Far from terrible, the estimates are slightly below analysts' projections of 49 cents per share and 7% growth in revenue. As a result, the stock was punished to the tune of an 8% drop in after-hours trading. This is an overreaction to a string of performances that have been absolutely solid.
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