Cisco Grows Where Others Can't

NEW YORK (TheStreet) -- With another quarter in the books for networking giant Cisco (CSCO), it seems not a whole lot has changed, which for the company is a good thing. What this means is that for now seven consecutive quarters, Cisco has beaten its earnings estimates -- a pretty remarkable accomplishment considering how the entire sector has been ravaged by poor economic spending.

While this has caused rivals such as Hewlett-Packard ( HPQ), F5 ( FFIV) and Juniper ( JNPR) to consistently underperform, Cisco continues to show growth where the competition have not.

Nonetheless, when discussing these accomplishments Wall Street remains broadly unimpressed. However this time, aside from exceeding expectations, Cisco also offered a much rosier outlook than many had anticipated. In terms of the stock, I think value investors would be wise to appreciate just how undervalued the shares are at current levels.

A Strong Start to Fiscal 2013

For the period ending in October, the network giant reported net income of $2.6 billion, or 48 cents a share on revenue of $11.9 billion. Not only was this enough to beat analysts' estimates of 46 cents per share, but the results also represented 11% profit growth.

Likewise, revenue also grew by 6% and exceeded street expectations of $11.77 billion.

However, challenges still remain in terms of the company's core routing and switching business, which continues to experience weak demand. On the other hand, the company enjoyed a strong showing in its services business with revenue growing year-over-year by 12%.

Cisco attributed the better-than-expected performance to some of its biggest U.S. customers, from which the company saw a 9% increase in orders -- helping offset continued weakness in Europe.

In terms of guidance, Cisco expects second-quarter earnings to arrive between 47 cents to 48 cents per share. The company also expects revenue to grow as high as 5.5% if it reaches the high end of its range of $12.1 billion.

The company has chosen to guide conservatively as has been the pattern for most of this year due to weak enterprise spending. Likewise, investors should expect the company to beat on these projections as it has done now for almost two years.

Where's the Love?

For as consistent as Cisco has been in its string of market-beating performances, the company can't seem to get any respect. It seems investors continue to doubt the company's ability to grow despite increasing profits in the recent quarter by double-digits. For this, Cisco's management deserves more credit than it has received of late. Despite persistent disrespect, the company remained focus on its execution while ignoring all of the noise.

Yet, despite what has been a difficult transition to "mature status" for Cisco, investors continue to forget that the company still owns 60% of the routing and switching business.

This is a testament to not only the quality of the company's product portfolio, but also to how loyal Cisco's customers have remained. Meanwhile the company's management has been executing as well as can be expected, reducing costs and trimming the fat from the company's less-than-favorable acquisitions.

Aside from maintaining its momentum, Cisco's current challenge is figuring out ways to fight off the competition -- from the usual suspects, such as the aforementioned F5 and HP, but also new entrants such as Palo Alto Networks ( PANW).

Palo Alto in its first earnings report as a publicly traded company produced not only year-over-year revenue growth of 90%, but grew that number by 15% over the prior quarter.

Although Palo Alto is in the early stages of its business, it is hard for even a well-established company like Cisco to ignore numbers like these. Nonetheless, Cisco still offers many market and enterprise advantages that smaller rivals can only hope to duplicate. Though Cisco may no longer be able to grow to the extent that it did in the late '90s, in many respects its "new growth spurt" has likely just begun.

But where's the love?

Bottom Line

I have no shame in admitting that I have always liked Cisco and have been one of its biggest cheerleaders. However, a sense of vindication is felt when discussing its consistent results in the face of significant market turmoil.

What's more, Cisco's strong fundamentals and particularly its cash position, which sits at close to $50 billion, offer the company more options for acquisitions to help grow profits and market dominance for the next decade.

Investors would be wise to love Cisco as current levels -- even as Wall Street continues to ignore the good.

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

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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