CSCO with Nobias technology: Cisco Shares Are Up 6% Since Their Q2 Earnings Report. Is It Too Late To Buy?
Cisco (CSCO), which has transitioned from a speculative high flier several decades ago into a equintessential cash cow of an “old tech” stock in today’s market, has regained its market darling status recently. Over the past year, the S&P 500 is up 11.11%. During this same period of time, CSCO shares are up 23.46%.
Throughout 2022, both the S&P 500 and CSCO shares have experienced high single digit weakness; however, Cisco posted fiscal Q2 results last week which caused the stock to rally. Cisco shares rose 6.14% during the past week. The broader markets were down roughly 1.5% during this period of time. We’re seeing geopolitical headlines (regarding the potential Russia/Ukraine crisis) drive markets lower. However, investors appear to be seeking shelter in the relatively defensive CSCO shares. Can this trend continue? Let’s take a look at what the credible analysts that the Nobias algorithm tracks have recently had to say.
Prior to Cisco’s earnings report Nobias 4-star rated author, Stephen Simpson, published a bullish article on Cisco shares. Regarding the company’s attempt to accelerate its fundamental growth after struggling for a couple of years during the pandemic period (during its fiscal 2020 and fiscal 2021 years, Cisco’s earnings-per-share total came in at just 4% and 0%, respectively), Simpson said: “Opportunity has never been the issue for Cisco, and it isn’t today – Cisco is targeting attractive growth markets that can easily support revenue growth. That’s particularly true over the next 12-24 months, as spending from enterprise, webscale, and service provider customers on 5G, 400GE, Wi-Fi, security, and other areas of interest to Cisco should be quite strong. The question is whether Cisco can get its large array of ducks in a row and execute on that opportunity.”
CSCO Feb 2022
Simpson highlighted Cisco’s relatively conservative valuation (unlike many of the speculatively valued technology stocks that we’ve witnessed experiencing precipitous sell-offs in recent months) and noted that this provides relative upside potential to the stock. He wrote, “Low-to-mid single-digit revenue and modest improvement in FCF margins (around 100bp or so from recent trends) can support a high single-digit long-term annualized return, and the markets Cisco serves should be able to support an even higher growth.” He concluded his piece saying, “I’m guardedly bullish here. The expectations embedded in the share price today suggest decent upside even if Cisco doesn’t significantly improve itself, but significant upside if execution were to materially improve.”
Anthony Miller, a Nobias 5-star rated author, recently published a report focused on Cisco’s Q2 results. He highlighted Cisco’s “Company Profile” saying: “Cisco Systems, Inc engages in the design, manufacture, and sale of Internet Protocol-based networking products and services related to the communications and information technology industry. The firm operates through the following geographical segments: the Americas, EMEA, and APJC. Its products include the following categories: Switches, Routers, Wireless, Network Management Interfaces and Modules, Optical Networking, Access Points, Outdoor and Industrial Access Points, Next-Generation Firewalls, Advanced Malware Protection, VPN Security Clients, Email, and Web Security.”
Regarding the company’s top and bottom-line numbers, Miller wrote: “The network equipment provider reported $0.84 earnings per share (EPS) for the quarter, topping the Zacks’ consensus estimate of $0.81 by $0.03, MarketWatch Earnings reports. The business had revenue of $12.72 billion during the quarter, compared to the consensus estimate of $12.67 billion.“ He continued, “Cisco Systems had a return on equity of 30.59% and a net margin of 22.44%.”
With regard to valuation and recent share price movement, Miller said, “The company has a market cap of $239.14 billion, a PE ratio of 20.17, a P/E/G ratio of 2.76 and a beta of 1.00. Cisco Systems has a 12 month low of $44.15 and a 12 month high of $64.29. The company has a current ratio of 1.62, a quick ratio of 1.54 and a debt-to-equity ratio of 0.21. The firm’s 50-day moving average is $58.87 and its 200-day moving average is $57.30.”
During the Q2 report, the company also provided full-year fiscal 2022 guidance. Management believes that Cisco will generate sales growth of 5.5%-6.5% on the year. Management is also calling for non-GAAP earnings-per-share to arrive in a range between $3.41-$3.46, which, at the mid-point, would represent roughly 6.5% growth compared to fiscal 2021’s full-year earning-per-share figure of $3.22.
Cisco management touched upon shareholder returns during the quarter as well. The company raised its dividend by approximately 3%. In a separate article, Miller touched upon this dividend raise saying, “The newly announced dividend which will be paid on Wednesday, April 27th. Investors of record on Wednesday, April 6th will be issued a dividend of $0.38 per share. This is a boost from Cisco Systems’s previous quarterly dividend of $0.37. This represents a $1.52 annualized dividend and a yield of 2.69%. Cisco Systems’s dividend payout ratio is currently 55.02%.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
The company said, “Cisco's board of directors has also approved a $15 billion increase to the authorization of the stock repurchase program. There is no fixed termination date for the repurchase program. The remaining authorized amount for stock repurchases including the additional authorization is approximately $18 billion.”
Within the company’s earnings report Cisco’s CFO, Scott Herren, touched upon these plans saying: "We delivered healthy margins while continuing to make good progress in our business model shift, with software product revenue growing 9% year over year and the product portions of ARR and RPO growing in double digits. The combination of our dividend increase and additional share repurchase authorization demonstrates our commitment to returning excess capital to our shareholders and confidence in our ongoing cash flows."
Cisco ended Q2 with $21.1 billion of cash on its balance sheet, which helps to support these generous returns. Overall, when looking at the sentiment expressed by the credible authors that the Nobias algorithm tracks (only those with Nobias 4 and 5-star ratings), we see that 95% of recent reports published on the stock have been “Bullish”. Right now, the average price target associated with CSCO shares provided by the credible (once again, 4 and 5-star rated only) Wall Street analysts that our algorithm tracks is $66.50. Today, CSCO shares trade for $57.21. Therefore, the aforementioned price target represents upside potential of approximately 16.2%.
Disclosure: Nicholas Ward is long CSCO. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.