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Prudential Ups Cisco to Buy

It says sales growth should be strong in coming months.
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Prudential raised


(CSCO) - Get Cisco Systems, Inc. Report

to overweight from neutral, saying its efforts to reduce order lead times should produce better-than-expected sales in the second half of 2006.

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Prudential raised its price target on the stock to $24 from $21 and said it now expects the company to earn 29 cents a share on revenue of $7.48 billion in its third quarter, which ends in April. The brokerage previously saw earnings of 27 cents a share on sales of $6.45 billion. The consensus estimate is 27 cents a share on $6.91 billion in sales, according to Thomson First Call.

For the year ending in July, Prudential raised its estimate on Cisco to earnings of $1.10 a share on sales of $28.61 billion. It had previously seen earnings of $1.06 a share on sales of $27.31 billion. For the year ending next January, Prudential expects Cisco to earn $1.31 a share on sales of $33.35 billion. It had previously seen earnings of $1.19 a share on sales of $30.17 billion.

Cisco closed at $18.77 Friday; its 52-week range is $16.83 to $20.25. In early trading Monday, it was up 27 cents, or 1.4%, to $19.04.

According to Prudential, Cisco is close to achieving the targets of an initiative that sought to increase the rate of on-time order fulfillment to 90% from around 60% several quarters ago. More orders filled on time means a closer correlation of orders and revenue, the brokerage said.

"We expect order growth to remain in the mid-teen level for the next few quarters, and feel Cisco can begin reporting a book-to-bill very close to 1, and remaining solid for the rest of FY06," Prudential wrote. "In addition, beyond January, we don't expect the increases in inventory nor the backlog draw-down we've seen lately. The combined effect should provide an inflection point for a sales re-acceleration by Cisco in its second half of 2006, above current expectations."