Why Cisco Investors Should Be Patient

NEW YORK (TheStreet) -- Shares of computer-networking giant Cisco (CSCO) have fallen 12% during the past nine months even though the company has beat earnings estimates for 10 quarters in a row. It will report earnings for its fiscal third quarter on Wednesday.

Analysts and investors are taking a wait-and-see attitude before going all in on the company's turnaround plans. Shares closed Monday at $23.19, up 5% year to date.

In December, citing a lack of visibility into the economy, CEO John Chambers cut the low end of the company's revenue growth estimates for the next three to five years from 5% to 3%. That spooked investors because it was the first time in three years the company had reduced its long-term outlook.

And in February, Cisco reported a 7.8% drop in revenue for its fiscal second quarter and delivered its lowest product gross margin (58.8%) in more than a decade.

There are now concerns that Cisco is losing market share to (among others) Juniper (JNPR) and F5 Networks (FFIV). Investors, however, should realize that the entire sector has underperformed because of shrinking corporate budgets. 

Cisco has countered by discounting some of hardware, which pressured margins. The margin numbers were tough to stomach. But there is plenty of untapped value here. 

Consider that even with its recent decline in revenue, Cisco reported second-quarter earnings per share of 47 cents excluding items, a penny better than analysts' estimates.  The company also raised its quarterly dividend to 19 cents a share from 17 cents.

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