Why Cisco Shares Might Keep Slumping

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cisco Systems slipped 1.5% today after MKM Partners downgraded the networking gorilla from buy, to neutral.

So what: Along with the downgrade, analyst Michael Genovese lowered his price target to $26 (from $28), representing about 12% worth of upside to yesterday's close. Cisco shares have outperformed the market since MKM's buy recommendation in October 2012, but Genovese thinks that it might be time to take some dough off the table, given his expectation of decelerating orders and tougher year-over-year comps in 2014.

Now what: MKM lowered its 2014 EPS estimate to $2.11 (from $2.14), and its 2015 view to $2.25 (from $2.28).  As MKM noted:

Cisco tends to outperform when the y/y product order rate is accelerating. Unfortunately, it stalled out at 4% in 4QFY13 due to soft macro conditions in several Emerging Markets. The EMs weakness looks to have continued in 1QFY14.

Of course, with the stock now off about 15% from its 52-week highs, and sporting a near-3% dividend yield, that near-term concern could be providing patient investors with a solid long-term income opportunity. 

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The article Why Cisco Shares Might Keep Slumping originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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