Has John Chambers Turned The Ship Around?

After yesterday's quarter, it looks as if the bottom is in for Cisco Systems, Inc. CSCO, at least for now. The tech titan, led by CEO John Chambers, reported earnings yesterday of 40 cents per share on $11.2 billion in revenues. Wall Street had been expecting earnings of 38 cents per share on $10.98 billion in revenues. As such, shares are soaring today, up more than 15% on the better than expected report. "We've made significant progress on our comprehensive action plan to position ourselves for our next stage of growth and profitability, while delivering solid financial results in Q4," said John Chambers, chairman and CEO, Cisco. "As we start our next fiscal year, you will see a very focused, agile, lean and aggressive company, that is laser focused on helping our customers use intelligent networks to transform their businesses." The more important part of the earnings release was the guidance for 2012, and Cisco was able to deliver here. The company, which has beaten down like a government mule, issued guidance for the first quarter at 38 to 41 cents per share, versus estimates of 39 cents per share. Cisco has seen its market share slip in certain segments, as the company got too big and lost its way. As such, revenue guidance was extremely important, with the company guiding revenues to be between $10.86 billion and $11.18 billion. This is up 1to 4%, versus estimates of a rise of 1.6%. Cisco is by no means out of the woods, but it does appear that the bottom is in for Cisco, at least as far as the stock is concerned. After shedding employees, businesses, and useless layers, the company is better positioned to compete with the likes of F5 Networks FFIV and Juniper Systems JNPR. The networking giant was able to increase its wireless business by 33%, which is incredibly important for the San Jose-based company going forward. Over the past three years, Cisco has been able to buy back $12 billion in stock, and increased cash by around $17.5 billion. The company has $5 per share in cash, and after the past five quarters, there was so much pessimism baked into the stock, that it was bound to beat. On the conference call, Chambers said that the company would be opportunistic and aggressive in buying back stock, if conditions continued to remain depressed. During the quarter, the company won a few key contracts with companies like NASDAQ OMX PHLX, the Philadelphia-based, high-performance options trading exchange, Comcast, Tata Communications, and China Telecom. At less than 10 times earnings and sporting a 1.7% dividend yield, Cisco is cheap at these levels. The company is still heavily dependent on government spending, which is being slashed across the world. Cisco will never be the high flying stock it once was in the 1990's, but Chambers does look to have turned the ship around. Pretty hard to do with a ship the size of the Titanic. ACTION ITEMS:

Bullish:
Traders who believe that Cisco has bottomed might want to consider the following trades:

• Look at the optical networking names that are dependent on Cisco. Oplink Communications, Inc OPLK is a name to consider.

• Consider higher growth competitors to Cisco, like F5, and Juniper.

Bearish:
Traders who believe that Cisco is still scrawling around the bottom may consider alternate positions:

• The conference call went well yesterday and expectations for Cisco are starting to rise. If the company can not not deliver on what it promised, Cisco will continue to be dead weight.
  
  

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