Popular tech company Cisco Systems, Inc. (CSCO) surpassed revenue and EPS estimates by 3% and 2.9%, respectively, for its fiscal 2023 first quarter ended in October 2022. Moreover, the company expects 4.5% to 6.5% year-over-year growth in its revenue for the fiscal year 2023.
On the other hand, favorable macro data, including falling inflation and robust job growth, have stirred up fresh optimism. According to a Bankrate survey, 57% said a bull market would begin again in 2023.
Hugh Johnson, the chief economist of Hugh Johnson Economics, believes, "I anticipate a more positive financial market environment beginning to unfold in Q1 or Q2, even though that may sound like and indeed be wishful thinking."
In addition, analysts Dan Ives and John Katsingris of Wedbush Securities see the potential for 20% growth in tech in 2023. This is expected to bode well for CSCO.
Furthermore, CSCO has paid dividends for 11 consecutive years. Its dividend payouts have increased at a 5.6% CAGR over the past five years. Its current dividend yield is 3.10%, while its four-year average yield is 2.98%.
CSCO has lost marginally over the past month. However, it has gained 14.3% over the past six months and 24.8% over the past three months to close the last trading session at $49.00.
Here is what could shape CSCO's performance in the near term:
Steady Top- and Bottom-line Growth
CSCO's total revenue came in at $13.63 billion for the fiscal 2023 first quarter that ended October 29, 2022, up 5.7% year-over-year. Its product revenue came in at $10.24 billion, up 7.5% year-over-year.
Its non-GAAP net income came in at $3.55 billion, up 2.1% year-over-year, while its non-GAAP EPS came in at $0.86, up 4.9% year-over-year.
Attractive Valuations
CSCO's forward EV/Sales of 3.51x is 28% lower than the industry average of 2.74x. Its forward Price/Sales of 3.69x is 35.5% lower than the industry average of 2.73x. Also, its forward EV/EBITDA of 9.78x is 25.9% lower than the industry average of 13.20x. Its forward Price/Cash Flow of 12.73x compares with the industry average of 17.81x.
Robust Profitability
CSCO's trailing-12-month gross profit margin of 62.23% is 25.6% higher than the industry average of 49.54%. Its trailing-12-month EBITDA and net income margins of 30.34% and 22.00% are 162.1% and 589% higher than the industry averages of 11.58% and 3.19%, respectively.
In addition, CSCO's trailing-12-month ROCE, ROTC, and ROTA of 27.72%, 17.02%, and 12.36%, compared with the industry averages of 4.75%, 3.21%, and 1.52%, respectively.
POWR Ratings Reflect Promising Outlook
CSCO's overall rating of A equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CSCO has an A grade for Quality, consistent with its higher-than-industry profitability margins. It has a B grade for Stability, in sync with its 24-month beta of 0.82.
In the 48-stock B-rated Technology - Communication/Networking industry, CSCO is ranked #4.
Click here for the additional POWR Ratings for CSCO (Growth, Value, Momentum, and Sentiment).
View all the top stocks in the Technology - Communication/Networking industry here.
Bottom Line
As the stock market is expected to recover this year, CSCO should garner significant returns. Wall Street analysts expect the stock to hit $55.33 soon, indicating a potential upside of 13.8%. Given the stock's robust fundamentals, CSCO might be an ideal buy this year.
How Does Cisco Systems, Inc. (CSCO) Stack up Against Its Peers?
While CSCO has an overall POWR Rating of A, one might consider looking at its industry peers, PCTEL, Inc. (PCTI), Extreme Networks, Inc. (EXTR), and AudioCodes Ltd. (AUDC), which have an overall A (Strong Buy) rating.
CSCO shares were trading at $48.63 per share on Friday morning, down $0.37 (-0.76%). Year-to-date, CSCO has gained 2.89%, versus a 3.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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