Cisco's stock gains, but fed business lags
- By John Moore
- Feb 23, 2006
Cisco Systems Inc. (CSCO) led the FCW Tech Index for the period between Jan. 30 and Feb. 13, a span that saw the company’s stock hit a six-month high.
The company exceeded Wall Street’s expectations when it reported earnings Feb. 7. The next day, the company’s share price rose more than 7 percent. Overall, the stock climbed 9.86 percent during the Tech Index’s two-week tracking period. The Tech Index overall gained 2.74 percent during that time.
Some stock analysts see growth potential in Cisco. RBC Capital Markets has raised its estimates for Cisco’s financial performance “for the first time in a long time,” noted analyst Mark Sue in a research note. He cited improving trends with North American enterprises as boosting the company’s prospects. RBC Capital Markets rates Cisco’s stock as outperform.
Those improving trends are mostly in the commercial sector, however. While Cisco’s orders have picked up among corporate enterprises, orders in the government space were flat compared to the same period last year, which Sue attributes to the slow progress of the federal budget.
A research note from investment banking firm Robert W. Baird & Co. said government spending is actually a risk factor for Cisco’s stock.
“Cisco receives approximately 20 percent of its quarterly revenue from the federal government,” the report stated. “However, sales to this vertical have been subdued as a result of the reallocation of budget dollars to fund the overseas wars.”
Baird's analyst suggested the shift in funding could dampen spending on infrastructure equipment over the next year or more, dimming Cisco's prospects.