This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greenberg: Why Investors Should be Careful With Cisco

SAN DIEGO (TheStreet) -- Cisco's (CSCO - Get Report) bounce says more about the little market that could than it does about Cisco.

As I wrote in Reality Check this morning, the company remains yellow-flagged on the Reality Check Watch List because of what would appear to be a pipeline stuffed with too much unsold inventory. Much of that, as I point out, is stealth and off the company's balance sheet.

But like grasping at straws, this is a market that wants to find the silver lining whenever possible and give companies that are "less bad," even if it's still bad, the benefit of the doubt.

So despite revenue falling 5.5% -- the second straight quarter of negative revenue growth -- Wall Street preferred to view the decline as better-than-expected and go along with CEO John Chambers' comment that he is "pleased with the progress to return to growth."

Must Read: Greenberg: Is Boulder Brands' Gluten-Free Bet Stalling?

Never mind that we've seen this before, with Chambers steering investors down a dusty dirt road:

  • May 2013, with comments that caused the stock to zoom: "Cisco is executing at a very high level in a slow, but steady economic environment. We are especially pleased with our ninth consecutive record revenue quarter. We are starting to see some good signs in the US and other parts of the world which are encouraging."
  • August 2013: "My confidence in our ability to be the #1 IT Company is increasing." (The stock tumbled on guidance.)
  • November 2013: "While our revenue growth was below our expectation..." The stock collapsed.

This time, in an apparent effort to help reignite investor enthusiasm with tone over substance, Cisco helped matters along by directing investors on how to view the company, with an earnings release that was headlined, "Cisco Demonstrates Solid Execution in Q3FY14."

Not every analyst took the bait.

According to a summary from Street Account, JMP analyst Erik Suppiger "remains concerned that CSCO is struggling to generate attractive growth across its growth products..."

And Citi analyst Ehud Gelblum, who rates the stock a sell, "notes Q3 beat was not very satisfying as product revenue declined 8% y/y; points to no change in long-term market forecasts, implying not much has changed overall -- continues to expects CSCO to lose share in switching and routing markets over the next few years as competitive pressures mount."

My own comments on Reality Check said investors shouldn't start to break out the bubbly with deferred product revenue rising 11%. While that may be a good sign at many companies, "At Cisco deferred product revenue represents products at distributors that can't yet be recognized because they haven't yet been sold through to the end customer. (In other words, the pipeline would appear to be getting backed up.)"

Reality: For years Cisco has been a woulda, coulda, shoulda stock. Now it's back to being a "maybe it will" stock in a market that wants to believe it already has. News flash: It hasn't. 

-- Written by Herb Greenberg in San Diego

Follow @herbgreenberg

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Herb's Tweets

Select the service that is right for you!

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Growth Seeker

Chris Versace, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Daily Swing Trade

Master swing trader Alan Farley uses his sophisticated software screens to review thousands of stocks each day for you, to find just the handful that meet his demanding criteria.

Product Features:
  • Daily commentary and coaching on swing trading
  • Technical charts and analysis
Top Rated Stocks Top Rated Funds Top Rated ETFs