Cisco's stock gets bump from positive analyst assessments

Financials, aggressive diversifying cited as favorable developments

RBC Capital analyst Mark Sue has raised his rating on Cisco's (Nasdaq: CSCO) stock from "sector perform" to "outperform" and set a share price target of $24, up from $21, according to a report by Forbes writer Eric Savitz.

In addition, MKM Partners named Cisco as a top stock pick for 2013 because the firm is "well positioned to define the next generation of holistic Intelligent Networks."

The news, along with the general Wall Street uptick from the U.S. fiscal cliff deal reached this week, bumped up Cisco's stock to around $20.45 in mid-morning trading.

Sue provided four reasons for his rating adjustment: firming visibility to forward estimates, gross margin stabilization, improving execution, and favorable risk/reward.

"Many of the negative issues related to Cisco have subsided. Cisco's core markets are no longer under attack from Huawei, HP and Juniper and Cisco's market shares have rebounded and stabilized. Cisco has also improved its sales execution and refocused its engineering talent…we believe another $1 billion can be further reduced from Cisco's cost structure which gives us added visibility to our forward earnings estimates," Sue wrote in the report quoted by Forbes.

Certainly Sue's optimism is reflected in Cisco's third quarter financial performance. The company posted an 18 percent year-over-year increase in net income, reaching $2.1 billion for the quarter. The high-tech behemoth also posted healthy revenue of $11.9 billion in the most recent quarter, up 5.5 percent from the $11.3 billion reported in the same quarter in the previous year. The company was able to generate $2.5 billion in cash from operations in the latest quarter.

In addition, Cisco is aggressively diversifying out of its shrinking core switching and router business. In November alone, Cisco acquired network traffic management firm Cariden Technologies for $141 million, cloud networking firm Meraki for $1.2 billion and the data center software firm Cloupia for $125 million.

For more:
- check out the Forbes article
- see MKM Partners' comments

Related articles:
Third quarter financials: Cisco leads the way with strong net income and revenue
Cisco's acquisition of Cariden latest effort to expand outside shrinking core business