Why Cisco Systems' Shares Took Off Today

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of Cisco Systems rose as much as 10% on Thursday after the company on Wednesday announced revenues and earnings per share (EPS) for its fiscal second quarter that topped Wall Street's expectations.

So what: Cisco's adjusted EPS for the quarter ended Jan. 24 came in at $0.53, two cents above analysts' consensus estimate, but it was revenues of $11.9 billion that really impressed (consensus: $11.81 billion) -- that amounts to a 7% year-on-year increase, the largest such increase in nearly three years:

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CSCO Operating Revenue (Quarterly YoY Growth) Chart

CSCO Operating Revenue (Quarterly YoY Growth) data by YCharts

Cisco CEO John Chambers adopted an extremely upbeat tone in characterizing the company's results during the earnings conference call, going as far as to say that "Cisco has never, ever been better positioned." After the call, he told Barron's "I feel the best I've felt in three years... because we had the courage to transform ourselves."

He was referring to the company's reorganization of its key network switching business in response to rising competition from old rivals and new entrants pushing software-defined networking (SDN). Over the course of several quarter, Cicso reviewed its product range and introduced its own version of SDN; those changes appear to have done the trick, with Cisco's switching revenues up 11% in the quarter.

Now what: Today's pop arguably puts Cisco's share price closer in line with fair value, but the latest results also raise the bar in terms of expectations. Note that the EPS guidance Cisco provided for the current quarter of $0.51 to $0.53 is exactly in line with the pre-announcement $0.52 consensus estimate; an upside surprise may be harder to come by at the next set of quarterly results.

The article Why Cisco Systems' Shares Took Off Today originally appeared on Fool.com.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.