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Cisco: It Has To Be Great, Just To Be Good

NEW YORK ( TheStreet) -- Like fine wine, appreciating "value" on Wall Street is often an acquired taste. As the market continues to demonstrate its insatiable appetite for both growth and instant gratification, it seems that stocks that present tremendous value are often overlooked and sometimes treated like red-headed step-children.

Disappointingly, the result is often a blatant disregard for fundamental analysis and an overall ignorance toward the things that ultimately impact the bottom line. One such example is what has unfolded at Cisco (CSCO - Get Report) since the network giant reported its recent earnings results.

On the heels of rival Hewlett-Packard (HPQ - Get Report) having reported better-than-expected second-quarter numbers, I have started to reassess why Cisco absorbed the post-earnings punishment that it did, whereas the market rewarded HP with an immediate 10% jump in its stock price. HP reported earnings per share of 98 cents on revenue of $30.7 billion -- beating analysts' estimates on both the top and the bottom line while analysts were expecting EPS of 91 cents on revenues of $29.91 billion.

Cisco on the other hand reported third-quarter earnings results of 48 cents per share -- topping analysts' estimates of 47 cents while representing 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. So what was the problem?

As much as I respect the turnaround story that is under way at HP, I can also admit that though the numbers were good, they were not great -- particularly from the standpoint of annual growth. Both revenue and EPS were actually down 3% and 21% respectively where Cisco showed an increase in both categories.

Furthermore, both companies issued guidance below Wall Street's expectations as they both opted to play it conservatively in light of the concerns surrounding Europe.

Moreover, as a way to highlight the inequity that exists with investors, one of Cisco's chief rivals in Riverbed (RVBD) recently reported earnings that missed on both the top and bottom lines. Yet its stock still enjoys a multiple of 50, four times that of Cisco's.
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