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CSCO on sale

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May 25, 2007 – Comments (0)

Time to take a stab at this blogging thing.  I've been astounded at how well I've done in CAPS since joining a few months ago - mostly due to underperform calls on New Centurty, arguably a no-brainer.  For my first blog, a brief rundown on why I think CSCO is ridiculously cheap.  Basically, a repeat of the stock pitch I just added.

I'm maintaining an 'outperform' pick on CSCO despite disappointing performance since the earnings release and conference call earlier in May '07. The stock fell after the conference call despite slightly beating analyst's estimates and reiterating good growth forecasts of 15-16%. Basically, CSCO beat estimates, but 'the market' was expecting a blowout and didn't get it.

With recent pullback to the mid 25's, CSCO is trading at a fwd PE of about 16.5, only one point higher than the S&P 500. This for a company with strong growth, $22+B of cash and only a little over $6B in debt. If they're only getting typical money market/t-bill rates, CSCO is netting nearly a billion a year just from the cash.

I believe there's $10-$15 upside potential and I don't see much downside risk from here.

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