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Deutsche Bank Lowers PT On Cisco Systems (CSCO) To $22, Maintains 'Buy'

 May 10, 2012 02:07 PM

Deutsche Bank (DB) lowered its price target on shares of Cisco Systems Inc. (NASDAQ:CSCO) to $22 from $24 to reflect its lowered forward estimates, while maintaining its "Buy" rating on the stock.

"Good results (Q3 revenues: $11.59B ; $0.48 pro-forma EPS) – roughly inline on revenues; slight beat on EPS, versus DB and consensus. The weak Q4 guide ($11.59B / $0.45 on the mid point) is indicative of near-term macro-driven uncertainty in enterprise IT spending," the bank said.

"We see Cisco a fundamentally sound business; treading cautiously, and see modest out-performance in the stock, based on potential for improving demand in 2H+," DB wrote in a note.

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DB said Q3 saw strength in switching (up +5% annually; Nexus 2k/5k up 75%), security, and in high-end NGN routing (likely, share gains versus Juniper, Huawei, etc), offset by weakness in video collaboration, etc. Book/Bill was roughly 1.0x, with good linearity.

"Sequential improvement in corporate gross margins (notably, Nexus 7k margin up 7 points) is indicative of Cisco's strong competitive position in the datacenter and in the enterprise. We also noted order strength in NGN routing," DB noted.

The bank said its research following tonight's conference call, suggests that some in the US channel believe that the weak guide is reflective on eurozone macro uncertainties versus any fundamental weakness in Cisco's sales execution, share loss, or across the board IT spending weakness in the US.

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"We remain with our conviction on a fundamentally well-positioned Cisco, with a refreshed portfolio, and note major product cycle ramps underway in 10GE datacenter and Cloud, mobility, BYOD and security driven campus upgrades, and in video," DB wrote.

Shares tumbled 9.9 percent to trade at $16.92 on Thursday. Over the past year, the stock has been trading between $13.30 and $21.30.

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