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Why Cisco Investors Should Be Patient

But with Wall Street's quarter-to-quarter obsession with growth, that performance wasn't enough. And that is where Cisco's management must convince a jittery market that the company's long-term plan remains intact. It starts Wednesday. 

Wall Street will be looking for earnings per share of 48 cents on revenue of $11.38 billion, which would represent a year-over-year revenue decline of 6.8%. But a decline would hardly be a surprise. Cisco -- which has always had a dominant market share in routers and switches -- has struggled amid the arrival of cheaper software.

Router and switches, which direct Internet traffic, account for almost half of Cisco's revenue. Meanwhile, businesses are shifting to cloud computing and are outsourcing their networking needs. That means corporations no longer need to build their own data centers, which was once the driving source of Cisco's growth.

Management's job is to find new growth areas before the legacy business come to screeching halt. To that end, management has outlined several strategies to boost long-term profits, including using Cisco's strong cash position to make significant acquisitions. Purchases have included Meraki, Cariden and Broadhop as well as anti-hacking giant Sourcefire (FIRE). The moves were done to offset the slow-growing hardware business. 

Cisco is a high-quality company trying to deal with soft corporate technology spending. Investors should management time to execute a turnaround.

With shares trading at around $23, I project fair value to reach $26 in the next six to 12 months on the basis of earnings-per-share and long-term revenue growth.

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

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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