Dresdner Tells Clients to Sell Cisco, Citing Accounting Issues
Dow Jones Newswires
biz.yahoo.com
NEW YORK -- Dresdner Kleinwort Wasserstein is telling its clients to sell shares in Cisco Systems (NasdaqNM: CSCO) Inc. , citing accounting and disclosure issues as well as the stock's valuation.
In a rare move for a Wall Street analyst, Dresdner's Ariane Mahler downgraded her Cisco rating to "sell" from "hold" Wednesday. She becomes the only analyst tracked by Thomson Financial/First Call to have a "sell" rating. Some 30 analysts have Cisco ratings of "buy" or "strong buy," while eight analysts rate the stock at "hold," First Call said.
In a research note, Ms. Mahler said the stock was 26% above her target price of $13. In recent trading, Cisco shares fell 31 cents to $16.07, on volume of 9.3 million, compared with the daily average of 69.3 million.
Ms. Mahler's note came a day after Cisco filed its quarterly 10-Q report with the Securities & Exchange Commission. She said the report contained few significant disclosures and did little to address her concerns.
The analyst said Cisco's results for the fiscal third quarter ended April 27 were "unimpressive," and Cisco's forecast for the fourth quarter was "tepid." Cisco said earlier in May its profits beat analysts' expectations, despite flat sales.
Ms. Mahler questioned Cisco's improved gross margins for the third quarter. Cisco reported pro forma margins of 63.1%, up from 57.6% in the second quarter and 54.5% a year earlier.
Ms. Mahler said the improvement had less to do with sales increases, and more to do with how Cisco was using excess inventory, for which the company took a $ 2.25 billion charge last year. She suggested Cisco's use of the inventory was artificially inflating gross margins.
Ms. Mahler also raised questions about Cisco's provisions against bad debt, leases, revenue recognition and off-balance sheet commitments.
Cisco officials couldn't immediately be reached.
Separately, Cisco said in the 10-Q its allowance for doubtful accounts rose to $346 million in the third quarter from $288 million a year earlier. This allowance is a reserve to cover customer payment defaults.
Merrill Lynch analyst Sam Wilson said the allowance was at its highest level ever. "We believe investors should keep a close eye on this," Mr. Wilson wrote in a research note. But he added that Cisco was probably being conservative with the allowance, and may lower it in the future.
Mr. Wilson is more bullish on Cisco than Ms. Mahler. He has a "buy" rating, and said the 10-Q revealed "no major alarms."
Cisco also disclosed that it has laid off 5,400 full-time employees since April 2001 , fewer than the 6,000 it originally said it would cut. As a result, the company reclassified $35 million of restructuring charges to consolidation of excess facilities and other charges.
- Peter Loftus, Dow Jones Newswires; 201-938-5267; peter.loftus@dowjones.com |
