Cisco Core Business Strengthening - Good For A Trade?

RBC notes that despite the choppy tape and the recent slide in the shares, their checks on Cisco (NASDAQ:CSCO) indicate strengthening trends across most of the company's business segments. And with the shares now trading at a discount to its growth rate, the firm is reiterating their Outperform rating.

Bookings in the carrier (25%) and commercial (25%) segments remain strong and they are also hearing of improving trends on the Enterprise side (45%). It's still early in the quarter to determine upside for the April Q but carrier activity and wireline spending trends give the firm comfort in their revenue estimate of $8.73B (+3% QoQ), broadly inline with the consensus of $8.76B.

Cisco hit a soft spot during the recent quarter with U.S. Enterprise customers and this segment only grew only in the mid-single-digits. From discussions at Voicecon, the firm believes some of this weakness is temporary and they believe the industry is still in the middle of a healthy upgrade cycle. Nevertheless, although the broader enterprise-spending trend remains healthy, they're not expecting a quick snap-back in demand right away.

Considering the telcos spend on video, the upgrade cycle by cable operators, and the healthy growth in user-generated video, the back- half of 2007 and CY08 may provide strengthening-demand for Cisco. On top of this improving backdrop, Cisco may enjoy magnified results due to its numerous product cycles. As large as the company is, Cisco may be entering a growth spurt. RBC's price target is $32, or 20x CY08 EPS.

Notablecalls: Not actionable but 'good to know' category. Given the overnight strength in Asia, you may want to try to get some commons cheap onboard. Just a trade, though. Would sell the merchandise soon after, as I suspect the overall market strength won't hold.