Wave of New Phone Business Carries Cisco Shares Ever Higher

An analyst changes his tune, setting off a buying frenzy.
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Scratch those worries about

Cisco

(CSCO) - Get Report

.

This morning

S.G. Cowen

analyst Chris Stix upgraded Cisco to strong buy from buy, fueling to the stock's climb. By early afternoon, shares ofthe leading computer networker were up 4 1/4, or 5,% to 89 1/8. Stix targets a 105 price for the stock.

Cisco has doubled since a recent trough in early October and now trades at a rich 94 times the profits it reported for the last four quarters.

In his research note, released today, Stix says Cisco is preparing promising new business with telephone carriers -- not historically its strong suit. Cisco will soon unveil a new "coreswitch" for carriers that can be substituted for conventional telephone architecture, he says. He estimates that a key product from its acquiredunit

Selsius

will generate $10 million in sales this fiscal year -- adrop in the bucket for now, considering Cisco reported sales of $2.59 billion for its latest first quarter ended Oct. 24. But this product is seen as crucial in runningphone service over corporate computer networks.

Other lines of business seem to be strengthening as well.Cisco is plowing forward with plans to outfit telephone carriers with gear for"digital subscriber lines," or DSLs, that provide customers with high-speeddata services. Cisco also will soon announce a new core asynchronous transfer mode switch, Stix says.

Stix was not so bullish early this fall. On Oct. 5 Stix downgraded Cisco to buy from strong buy, stating that overall "corporate spendingappears poised to slow, putting growth estimates at risk." He cited arecent survey by Cowen, in which four of 11 financial-services companiestold Cowen they cut their IT budgets in the prior three months. Stix could not be reached to comment on his current position on corporate spending.

Doug MacKay, portfolio manager with

Oak Associates

, stayed bullish in early October. He follows Stix's research but decided that"even if it was a slowdown, it would be temporary." MacKay's firm is still buyingCisco.

In the meantime Cisco continues to climb. Corporate spending hasn'tslowed yet, and Stix believes Cisco is building new business with telephonecarriers.