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Cisco Looks Strong Ahead of Earnings

Stocks in this article: CSCO HPQ T VZ FIRE

NEW YORK ( TheStreet) -- After starting off the year trading at $19.36 per share, Cisco's (CSCO) has soared by as much as 37%. It's taken almost two years, but the Street finally seems warm to the idea that the networking giant can still be a growth story, if not a dominant cash-flow generating machine.

In that regard, I don't believe Cisco's management has gotten the credit it deserves, particularly CEO John Chambers, who has gotten more than his share of criticism. The company has ignored all of the noise, focusing solely on execution. You will be hard pressed to find a company in any sector that is executing better than Cisco, which will be going for its tenth consecutive earnings beat.

On Wednesday, after the market close, the company will report fiscal fourth-quarter and year-end results. The Street will be looking for earnings per share of 51 cents for the quarter, which would represent 8% year-over-year growth. Revenue, meanwhile, is expected to come to $12.41 billion, or 6% year-over-year increase. Investors are anxious to see if Cisco, which still looks undervalued by 15%, can maintain its momentum.

Unlike recent quarters, the Street has become more bullish on Cisco's expectations, which has seen its stock jump to its highest level in two years. Although Cisco is known for its industry-leading routing and switching businesses, management has been working hard to transition the company out of the hardware mindset, while building up Cisco's capabilities into what is called software-defined networking, or SDN.

What's more, the company has been on a shopping spree -- most recently picking off anti-hacking giant Sourcefire (FIRE) for $2.7 billion. This deal comes amid a slew of other acquisitions for Meraki, Cariden and BroadHop.

In other words, as the hardware businesses continue to erode, management has left no stone unturned looking to diversify Cisco into higher-margin businesses. Given the stock's strong performance on the year to date, the Street loves the changeover.

Without question the Street has bet correctly on Cisco. On Wednesday, I expect that management will outline the company's strategic vision more clearly. I will also be listening very closely to hear what management says about what spurred the deal for Sourcefire, a deal for which I believe Cisco overpaid. Even so, to the extent that Cisco's correct on Sourfire's growth potential, this deal should potentially add an extra 2% (at least) to Cisco's long-term revenue growth.

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