VegasMan,
1. Consensus estimates for Cisco are: $0.74 in FY99 (28% eps growth), $0.92 in FY00 (24% eps growth), $1.11 in FY01 (21% growth). Perhaps you are thinking about revenue estimates, which are not systematically published. Of the 10 or so Sell Siders I talk to regularly, average revenue growth estimate is about 30% for 5 yrs.
2. Consensus estimates for Lucent are: $1.20 in FY99 (36% eps growth), $1.46 in FY00 (22%), no consensus in first call for FY01, but the average of the 10 sell side models I have is $1.85 for FY01(27% eps growth). Average revenue growth estimate is just over 20%.
3. Obviously, the big difference is that most analysts expect LU to expand operating margins and Cisco to contract operating margins. I think this is a good assumption.
4. Cisco management has successfully propagated the perception that Lucent faces more risks than does Cisco. I believe strongly that the opposite is true, given Cisco's apparent struggles to deliver carrier class equipment and establish deep customer relationships with carrriers. (I know OG will disagree) This is why operating expense levels have been increased over 400bp in the last 6 quarters.
5. Bottom line: Cisco share price has risen at a much higher rate than Cisco earnings yielding a P/E to eps growth rate of more than 3. This has been great for Cisco shareholders, and we have profited alot from Cisco riding this momentum. However, there is alot of risk involved. Meanwhile, Lucent stock has kept a reasonable pace relative to earnings sustaining P/E to eps growth of less than 2. Given I see more reason to suspect Lu will significantly outgrow consensus, its clear to me which is the better investment right now. |
