Deutsche Bank Securities upgraded

Cisco Systems

(CSCO) - Get Cisco Systems, Inc. Report

to buy from a hold Tuesday, citing the company's discipline in managing expenses. It raised the price target to $25 from $17.

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In early trading, Cisco was up 8 cents, or 0.4%, to $20.94, setting a new 52-week high. The 52-week low is $8.12.

Cisco's CFO Dennis Powell told Deutsche analysts that the company plans on keeping expenses flat until sales rise enough that operating expenses fall to 35% of revenue from their current 41%. According to the analysts, the new 35% level would require revenues of about $5.8 billion, which they expect the company to meet by the time it reports its fiscal 2005 third quarter in the spring of 2005. (Deutsche Bank maintains multiple relationships with Cisco as an owner and market maker in the stock, and provides investment-banking services.)

The Deutsche analysts also cited Cisco's "unchallenged position in data networking," and what it sees as a broad-based macro economic recovery leading to increased spending from Cisco's enterprise and government accounts.

Given Cisco's expense management and these other positive signs, the brokerage expects Cisco shares to trade at the high end of its historical earnings multiple range, in other words around 30, producing the $25 estimate when factoring in cash on hand and excluding interest income. It warned, however, that any delay in the macroeconomic recovery would likely dampen the revenue and earnings growth that is driving the new price target.

Deutsche analysts also explored the reasons behind the slight decrease in backlog for last year, citing decreased lead times in Cisco's mature product lines. They also noted that while Cisco is making strides in proposing new standards in storage area networking, and will offer competitive differentiation with virtual storage area networks as they did with local area networks, the market remains in its infancy.