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Cisco Sell-Off Leads Tech Sector Lower

October 31, 2000|From Bloomberg News

In another sign that Wall Street is throwing in the towel on technology stocks, Cisco Systems shares sank 5.2% on Monday after an analyst cut his price target for the stock.

Cisco (ticker symbol: CSCO) fell $2.63 to $48.06, lowest since last December. Its plunge hurt other makers of computer- and telecom-networking equipment and contributed to the Nasdaq composite index's 2.7% loss for the day.

Cisco, a market darling for much of the late-1990s, was already down 37% from its March 27 all-time high of $80.06 when Lehman Bros. analyst Timothy Luke on Monday dropped his 12-month forecast for the stock to $60 to $65, from $90.

Luke said the stock merits a price-to-earnings ratio roughly half of what it carried at its peak--121 times next year's expected profit. Growth in spending on new equipment is slowing at the telephone companies that are among the major customers for Cisco's products, he said.

Investors had awarded Cisco, and many other computer-related and telecom stocks, triple-digit P/E multiples on the expectation that sales and profits would grow almost nonstop in coming years.

"Even now at 60 or 70 times earnings, Cisco's caught up in the process of [investors] lowering growth expectations for market winners," said Lynn Yturri, manager of the One Group Equity Income fund.

Luke's new price target represents a multiple of about 65 times the 85 to 90 cents a share profit he expects the company to report in calendar year 2001. The stock now trades at about 55 times that earnings estimate.

Luke kept his "buy" rating on Cisco and said he expects the company's sales and profit will meet forecasts when it reports fiscal first-quarter earnings Monday.

Yturri said Luke's call makes sense, given the way investors have knocked down other highly valued tech stocks, including some of Cisco's competitors.

"Last week, it was Nortel," Yturri said, referring to the 38% plunge in Nortel Networks (NT) shares last week after the firm said revenue for its optical networking business fell short of forecasts. "Maybe this week it will be Cisco. Maybe next week it will be EMC Corp.," she said, referring to the data-storage-products company that currently trades at 83 times 2001 estimated earnings.

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Cisco Sinks

Cisco Systems is down 40% from its March 27 all-time high of $80.06, the latest dip coming Monday after an analyst lowered his price target for the company.

Cisco shares, monthly closes and latest

Monday: $48.06, down $2.63

Source: Bloomberg News

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