The Zacks Analyst Blog Highlights: Cisco Systems, Juniper Networks, Hewlett Packard, F5 Networks and U.S. Bancorp

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Apr 02, 2012, 09:30 ET

CHICAGO, April 2, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Cisco Systems Inc. (Nasdaq: CSCO), Juniper Networks (NYSE: JNPR), Hewlett Packard Company (NYSE: HPQ), F5 Networks (Nasdaq: FFIV) and U.S. Bancorp (NYSE: USB).

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Here are highlights from Friday's Analyst Blog:

Cisco Eyes Network Manager

Cisco Systems Inc. (Nasdaq: CSCO) announced its plan to buy privately held ClearAccess for an undisclosed amount. The transaction is expected to be completed by the fourth quarter of fiscal 2012, pending customary closing conditions.

Vancouver-based ClearAccess provides both hardware and software for Internet service providers to manage increasingly complex networks for homes and mobile devices.

The newly acquired products from the ClearAccess acquisition include TR-069-based software that helps service providers to manage residential and mobile devices. Cisco intends to blend TR-069-based product with Cisco Prime, its network management software portfolio. The acquisition will improve Cisco's software capabilities for service providers, thereby improving operational efficiencies and customer experiences.

However, the hardware portion of the ClearAccess, called Smart RG Gateways, will remain an independent company called SmartRG Inc.

Cisco is eyeing to capture a large share in the expected revenue to be generated by worldwide internet traffic within the next few years. The network giant assessed that contribution from video content transfer would be roughly 90.0% of the total internet traffic revenue. ClearAccess' cloud and video services will allow Cisco to capitalize the opportunity. Earlier this month, Cisco also acquired London-based video communications company NDS for $4 billion to bolster its video strategy.

Cisco Systems is a leading provider of IP-based networking and other products. Although Cisco is taking steps to lower its cost structure by reducing headcount, it is not ignoring growth opportunities.

Cisco is no doubt the networking leader, but competitors like Juniper Networks (NYSE: JNPR), Hewlett Packard Company (NYSE: HPQ) and F5 Networks (Nasdaq: FFIV) are gradually picking up market share.

The Zacks Rank on Cisco shares is #2, implying a Buy recommendation over the next 1-3 months.

U.S. Bancorp Lowered to Neutral

We are downgrading our recommendation on U.S. Bancorp (NYSE: USB) to Neutral from Outperform based on a tepid economic recovery and low interest rate environment. We anticipate a compression in interest margin and expect only modest fee income growth in the upcoming quarters.

Fourth Quarter Results

U.S. Bancorp reported fourth-quarter 2011 earnings of 69 cents per share. Excluding the gain from a litigation settlement and expense accrual related to mortgage servicing matters, the company reported earnings of 64 cents per share. Earnings surpassed the Zacks Consensus Estimate of 63 cents per share.

Stress Test and Capital Redeployment

U.S. Bancorp has a disciplined approach to capital management, and capital redeployment remains a top priority for the company. We believe that the passing of the stress test along with the capital redeployment plans serve as positive catalysts for the company's stock price.

After receiving the approval from the Federal Reserve, the company has announced a 56% hike in its dividend and a 100 million share repurchase authorization. In fact, management expects to return 60–80% of earnings to its shareholders in the form of dividends and buybacks over the long term. Such shareholder-friendly approach inspires investors' confidence in the stock.

Our Take

With a wide range of product offerings, U.S. Bancorp remains well positioned for organic growth. Its strong retail banking franchise and leadership in payment processing should continue to help in growing its earnings. Moreover, the company is also focused on expanding its business through acquisitions. It has a well-balanced business model, with non-interest revenue representing nearly half of its total revenue.

U.S. Bancorp's loan growth, improving credit quality and solid capital levels appear impressive. A rise in dividend payouts and share buybacks following the stress test results give a fillip to investors' confidence.

However, we believe that the positive factors have already been priced in the current valuation. Moreover, a sluggish economy that adversely affected consumer and business spending has impacted a number of fee-based categories over the last several quarters. Though we expect the fee-based category to pick up over time with an improvement in the economy, we think that the progress will be tardy with a sluggish economy recovering. Moreover, we believe that given the current interest rate environment and the company's cash position, net interest margin will remain under pressure.

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