Monday, January 22, 2007

Calls of Note Part 5

- Goldman Sachs is out with a call on Cisco Systems (NASDAQ:CSCO) saying they think the co is in the early stages of a multi-year product cycle that they believe will sustain double digit growth for the next 3 to 5 years. Firm's above consensus view reflects acceleration in high margin carriers sales, stable high single digit switching growth based on their proprietary model, and continued share gains in advanced technologies. Analysis points to unprecedented price stability in major product lines suggesting margins stability and operating leverage. In the report the firm detail their proprietary Cisco switching model, and a new enterprise routing model - both suggest continued positive margins.

GSCO is raising their FY2007, FY2008, and FY2009 estimates to $34.2 bn/ $1.31, $38.8 bn/$1.53, and $43.9 bn/$1.75 (excluding ESO).

Key catalysts include: 1) Early 2007 introduction of consumer electronics that speed the adoption of "video over the internet" services from Apple and Microsoft, and others will be positive for carrier spending on Cisco's products. 2) New product launches in Cisco's edge routing platform in 1H2007 should help Cisco gain further share. 3) Aggressive share repurchase should continue. 4) Firm's contacts confirmed strong demand for both corporate and carrier products in Europe in the quarter and emerging markets.

Maintains Buy and $35 tgt.

Notablecalls: Only GSCO has the power to move this mega-cap stock. I suspect we will see buying interest in CSCO today.

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