Cisco seen reporting solid results

NEW YORK (Reuters) - Cisco Systems Inc (CSCO.O) is expected to report solid quarterly results as its expansion in emerging markets and network upgrades by phone companies help minimize the effect of slower U.S. corporate spending.

A profit warning by Alcatel-Lucent (ALUA.PA) and weaker results from Tellabs Inc (TLAB.O) have raised fears of slower network and communications spending in North America, but most analysts said Cisco's results on November 7 will likely show sales and profit growth.

Analysts on average forecast Cisco's fiscal first-quarter revenue rising 16.5 percent to $9.53 billion, compared with $8.18 billion in the same quarter a year earlier, according to Reuters Estimates. Cisco's own forecast was for revenue in the range of $9.45 billion to $9.55 billion.

The average forecast for earnings before items for the three months through October was $2.3 billion, or 36 cents per share, compared with $1.9 billion, or 31 cents a share, a year earlier.

Goldman Sachs analyst Brantley Thompson said Cisco's enterprise segment, or corporate clients such as banks and retailers, now account for only around 13 percent of sales.

"If we assume that U.S. enterprise grows at mid-single digits rather than in the mid-teens, it would only shave off 1 percent of the overall growth rate for Cisco, with the company still growing revenue well over 15 percent," said Brantley Thompson, analyst at Goldman Sachs.

He reiterated a "buy" rating on Cisco shares on Wednesday.

Cisco is the world's top maker of routers and other network equipment, and has been expanding into video conferencing and new Web-based software through acquisitions of small start-ups. It also owns cable set-top box maker Scientific-Atlanta.

Analysts have said such diversification, in addition to its expansion into fast-growing markets like India, should help Cisco continue posting double-digit revenue growth in coming years.

Cisco said in October it planned to buy Navini, a company specializing in WiMAX long-range wireless technology, for $330 million, a move analysts said would help boost its business in developing countries that lack telecommunications infrastructure.

WAIT-AND-SEE ON ECONOMY

Some analysts noted that Juniper Networks Inc JNPR.O, a smaller rival to Cisco, reported solid core router sales last week, showing that telecom companies were still upgrading their networks.

While Juniper shares fell after the results as some investors had expected a bigger earnings surprise, a few analysts upgraded their views on Juniper and said it boded well for Cisco's core router sales.

Despite such upbeat views, some analysts said Cisco may shy from upgrading its full-year outlook. Cisco has forecast annual revenue growth of 13 to 16 percent.

"Although North American enterprise now only represents about 12-13 percent of total revenues, it's still enough to keep Cisco's stock multiple in check in the near term," said RBC Capital Markets analyst Mark Sue. He has an "outperform" rating and $35 price target on the shares.

Cisco shares are trading at around $33, up nearly 37 percent from a year earlier and around 18 times earnings estimates for fiscal year 2009.

UBS analyst Nikos Theodosopoulos said Cisco likely had an internal revenue growth target of around 16 to 19 percent for the full year, but the company would probably wait another quarter before going public with a stronger outlook.

"We believe Cisco may choose to raise its annual guidance after Q2 rather than now, given some macro concerns and weak retail and financial enterprise verticals," he said.

Theodosopoulos has a "buy" rating and 12-month price target of $38.00, valuing it at 21 times his forecast for Cisco's adjusted 2009 earnings.