Market correction pulls down Cisco

On March 27, the stock price for Cisco Systems hit $80 per share, blasting the market valuation of the network infrastructure firm past that of software giant Microsoft for the first time. But since that high point just two months ago, Cisco shares have zigzagged downward, losing more than one-third of their value.

Analysts said the March market correction, which hit technology issues particularly hard, triggered Cisco's slide.

"The [lowered] stock value is more market-related than Cisco-related," said John Bowen, a financial analyst at FAC/Equities, the investment wing of First Albany in Albany, New York. "In general, the market is penalising companies that had very high valuations. Cisco has always had a high valuation, but it's been higher than normal in recent months."

Bowen added that because the fundamentals of San Jose-based Cisco remain solid, the company has been able to avoid a more drastic rollback in value.

Other network infrastructure hardware firms took much worse beatings in the market-correction crunch. Juniper Networks closed at $169 per share on May 22, down from a 52-week high of $312.94 on March 29. Sycamore Networks, has endured a stock market roller-coaster ride, dropping from a 52-week high of $199 on March 2 to a 52-week low of $47.25 on April 17. The stock closed at $80 last Monday.

Of the 42 financial analyst firms that made recommendations on Cisco's stock, 62% rated the stock a Strong Buy, while 33% deemed it a Buy. Only two analysts suggested that investors should merely hold on to the issue.

One of the analysts who downgraded Cisco to a Hold said the stock's value rose ahead of expectations.

"Even a solid foundation cannot support a building with a thousand stories," said Dave Powers, a financial analyst at Edward D. Jones & Co. in St. Louis. "And that's what Cisco was in late March."

He added that rising interest rates and inflation have also caused concern.

Most technology firms don't take on debt, which means rising interest rates don't affect corporate operations, he explained. However, their customers may cut back capital expenditures normally financed by debt, which could negatively affect revenue streams.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

More about CiscoFirst AlbanyJuniper NetworksMicrosoftSycamore Networks

Show Comments