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TheStreet Open House

Cisco Looks Strong Ahead of Earnings

But I don't believe Cisco was just buying growth. As the company works to become a broader IT supplier with a greater software bias -- a strategy in which Sourcefire fits perfectly -- I expect Cisco's long-term profit margin and cash flow will also get a boost.

The good news here is this company has now created a "bridge" between its weakening hardware business, which has posted soft margins, to its SDN and services businesses, which is expected to outperform for the next three to five years.

Don't mistake this for any assumption that Cisco is suddenly becoming a pushover in hardware. Despite this recent weakness, neither Juniper (JNPR) nor Hewlett-Packard (HPQ) have been able to mount any type of attack. That Cisco's routers and switches still power more than half of the Internet speaks to how superior the products have been and how wide the gap remains between rivals.

Also, when considering that AT&T (T) and Verizon (VZ) have begun recent 4G upgrades on U.S. wireless networks, it's tough to see how anyone can discount Cisco's hardware position. These upgrades will fuel Cisco's hardware revenue. Investors can't lose.

On Wednesday, I expect both revenue and earnings to be on the upside of the company's guidance, which should propel the stock higher. Let's not forget this stock has shown a history of jumping by as much as 3% following the company's earnings reports, notably in the last two quarters.

But as always, what will determine the stock's overall reaction is how management guides for the next quarter. I wouldn't be so caught up on guidance; it's too narrow-minded. This is still a long-term story. Until anything changes from a cash-flow perspective, which would impact Cisco's long-term revenue growth rate of 5%, this stock remains a strong buy.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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