Top tech company Cisco Systems, Inc. (CSCO) surpassed revenue estimates by $343.74 million for its latest reported quarter.
Moreover, amid favorable inflation data, the Fed is expected to slow down its rate hike aggression in 2023. Slower rate hikes are expected to bode well for tech-related stocks. In addition, given the robust demand for tech goods and services, CSCO is expected to gain significant returns in 2023.
“While inflation is devastating consumer markets, contributing to layoffs at B2C companies, enterprises continue to increase spending on digital business initiatives despite the world economic slowdown,” said John-David Lovelock, Distinguished VP Analyst at Gartner. “IT spending remains recession-proof,” he added.
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 3.25%, while its four-year average yield is 2.98%.
While CSCO has lost marginally over the past month, it has gained 6% over the past six months and 12.2% over the past three months to close the last trading session at $46.78.
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 3.34x is 23% lower than the industry average of 2.72x. Its forward Price/Sales of 3.53x is 24.5% lower than the industry average of 2.83x. Also, its forward EV/EBITDA of 9.32x is 30.3% lower than the industry average of 13.36x. Its forward Price/Cash Flow of 12.15x compares with the industry average of 18.14x.
Robust Profitability
CSCO’s trailing-12-month gross profit margin of 62.23% is 25.7% higher than the industry average of 49.53%. Its trailing-12-month EBITDA and net income margins of 30.34% and 22.00% are 162.1% and 582.7% higher than the industry averages of 11.58% and 3.22%, 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 0.97.
In the 48-stock B-rated Technology - Communication/Networking industry, CSCO is ranked #3.
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
CSCO has witnessed steady growth in the most recent quarter despite the macro headwinds. Moreover, Wall Street analysts expect the stock to hit $54.70 in the near term, indicating a potential upside of 16.9%. Given the stock’s robust fundamentals, I think CSCO might be an ideal buy in 2023.
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 $47.57 per share on Monday morning, up $0.79 (+1.69%). Year-to-date, CSCO has gained 0.65%, versus a 4.87% 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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