Say one thing for Cisco's ( CSCO) John Chambers: His voice carries. An analyst upgrade of the big San Jose networking shop touched off a sectorwide rally Monday. And what was behind the upshift? Not much beyond the modestly upbeat comments made by the perpetually peppy Chambers on last week's Cisco earnings call. Citing the rising investor sentiment accompanying last week's steady sales forecast, Lehman Brothers analyst Tim Luke raised the stock to buy from neutral in a research note Monday. Cisco jumped 75 cents, or 5%, to $16.70 in midday trading, and other gearmakers weren't far behind: Juniper ( JNPR) added 4%, Extreme ( EXTR) rose 9%, Foundry ( FDRY) rallied 5%, Nortel ( NT) climbed 3%, and Lucent ( LU) edged up 1%. The latest run-up shows the faith investors continue to put in Chambers, Cisco's CEO. Driving Monday's stock action was Chambers' comment
last week that he was a "little more cautiously optimistic" about sales prospects. Even as he predicted sequentially flat revenue for Cisco's current fourth quarter, the executive offered that he had a "slight upward bias" to that projection. Since then tech watchers of all stripes have cited the apparently bullish comment to bolster the view that tech will eventually break out of its yearslong doldrums. The Lehman report builds on that theme, saying that even if growth may not be at hand Cisco's sales declines may be over. In his report, Lehman's Luke says the solid order flow that Cisco began seeing in April is apparently continuing this month. Any sign that Cisco is in for smooth sailing tends to be read on Wall Street as a bullish indicator for the rest of tech. Keen to the persuasive powers of Cisco's chief pitchman, Luke notes that Chambers is scheduled to speak at two investment conferences in the coming weeks. These engagements will likely give Chambers ample opportunity to expand on the reasons for his surging spirits. Of course, not everyone is buying this rebound story. Some investors pointed out last week that Chambers seemed to be straining to straddle two conflicting trends. On the negative side, Cisco's numbers last quarter, notably the closely watched book-to-bill ratio, showed that orders were coming in at a slower clip than shipments were going out. And the company predicted fourth-quarter earnings of 13 cents a share, a penny below analysts' expectations. Even so, Chambers managed to convey a sense of optimism that wasn't lost on analysts. Part of the justification for Luke's upgrade was valuation. Noting that Cisco is trading at a forward price-to-earnings ratio of 26, which lags other tech bellwethers, Luke sees room for appreciation. "We believe that while sales growth may be modest, Cisco's shares could move to trade at levels on par with other technology industry leaders such as Dell ( DELL), Microsoft ( MSFT), Intel ( INTC), Texas Instrument ( TXN), Oracle ( ORCL)," notes Luke in his report. By Luke's estimation, Cisco justifiably could trade at 25 times 2004 earnings, which translates to a stock price of $18 to $19. Of course, some Wall Street observers were inclined to view the upgrade as more of a quick opportunity to strike while the market is hot. "I think it's a case of the stock being up, therefore it gets an upgrade," said one New York-based money manager with no Cisco position.