Jefferies & Co. initiated coverage of Cisco Systems, Inc. (NASDAQ: CSCO) with a hold rating and a price target of $15.75.

We believe it’s too early for investors to commit to the stock as we’re still in the very early innings of a potential turnaround, said George Notter, an analyst at Jefferies.

Notter said the organization has a tremendous franchise to leverage going forward. Key assets include: a massive installed base of equipment and customers; an unmatched sales and distribution channel; an enormous and loyal base of Cisco certified engineers; and a rock-solid balance sheet.

Notter said the quest for growth pushed Cisco to pursue merger and acquisition (M&A) as well as new product initiatives that were misguided in his view. In some cases, Cisco even took their eye off the ball in their core Switching and Routing businesses. These issues compound the problems the organization is having with their various new growth initiatives.

Notter said budget cuts in the U.S. and globally continue to pressure Public Sector sales which carry better-than-average margins for Cisco.

Notter said while the organization has a tremendous franchise and the stock looks cheap, it’s very early days in the company’s restructuring efforts. Cisco hasn't yet addressed a myriad of issues in the business. Also, he expects that there’s significant inertia -- these types of turnarounds can take a very long time.

The outlook for the business (and earnings power) can still get worse. Product transitions / competition in the Switching business, questionable execution in Routing, and growing UCS sales threaten to further dilute margins and profitability. As such, we’re inclined to remain on the sidelines with regard to the stock, said Notter.

The brokerage modeled for Cisco to generate fiscal 2011 earnings of $1.29 per share on revenue of $42.89 billion, and 2012 profit of $1.31 per share on revenue of $44.45 billion.

Cisco stock closed Thursday's regular trading down 0.79 percent at $16.25 on the NASDAQ Stock Market, while in the after-hours the stock rose 0.12 percent to $16.27.