JP Morgan cut Cisco Systems (CSCO) to neutral from overweight.
Cisco posted 20 cents fourth-quarter GAAP earnings per share. Analyst Ehud Gelblum says he downgraded on the belief that slowing revenue growth and a continued buildup of inventories indicates a fundamental shift in Cisco's business model. He believes Cisco is being forced to carry more inventory in order to satisfy increasing demands from its customers, which in turn reflects a shift in leverage between Cisco and its customers.
At 22.5 times his 91 cents (down from 92 cents) calendar 2005 earnings per share estimate, Gelblum says he doesn't think Cisco is cheap enough to classify as value, and says cracks in its balance sheet have caused his conviction in the stock to wane.