Cisco Systems, Inc. (CSCO) designs and manufactures Internet Protocol-based networking and other communications and information technology-related products. On October 12, 2022, CSCO and tech behemoth Microsoft Corporation (MSFT) announced their new partnership at MSFT’s annual Ignite conference.

With this partnership, CSCO and MSFT Teams will be able to run natively on CSCO Room and Desk devices, and CSCO will be a partner in the Certified for MSFT Teams program in the first half of 2023.

CSCO paid consecutive dividends for 11 years. Its dividend payouts have grown at a 6% CAGR over the past five years and a 3.1% CAGR over the past three years. Its current dividend yield is 3.78%, while its four-year average yield is 2.96%.

CSCO has lost 8.6% over the past month to close the last trading session at $40.20. It has lost 36.6% year-to-date and 27.8% over the past year. However, the stock has gained 20.1% over the past five years and 118.4% over the past ten years. Moreover, Wall Street analysts expect the stock to hit $54.00 soon, indicating a potential upside of 34.3%.

Here is what could shape CSCO’s performance in the near term:

Solid Year-end Financials

CSCO’s total revenue came in at $51.56 billion for the year ended July 30, 2022, up 3.5% year-over-year. Its net income came in at $11.81 billion, up 11.5% year-over-year, while its EPS came in at $2.82, up 12.8% year-over-year. Also, its gross margin came in at $32.35 billion, up marginally year-over-year.

Mixed Valuations

CSCO’s forward EV/Sales of 2.90x is 20% higher than the industry average of 2.41x. However, its forward EV/EBITDA of 7.97x is 29.2% lower than the industry average of 11.25x. Its forward P/E of 13.62x is 29.8% lower than the industry average of 19.40x. Moreover, its forward Price/Cash Flow of 10.00x is 34.7% lower than the industry average of 15.30x.

Robust Profitability Margins

CSCO’s trailing-12-month gross profit margin of 62.55% is 23.3% higher than the industry average of 50.72%. Its trailing-12-month EBITDA and net income margins of 30.84% and 22.91% are 153.3% and 486% higher than the industry average of 12.18% and 3.91%, respectively.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 29.15%, 16.81%, and 12.57%, compared with the industry averages of 6.45%, 3.80%, and 2.31%, respectively.

POWR Ratings Reflect Promising Outlook

CSCO has an overall rating of B, which equates to 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.

The stock has an A grade for Quality, in sync with its higher-than-industry profitability margins, and a C grade for Value, consistent with its mixed valuation multiples.

In the 50-stock Technology – Communication/Networking industry, CSCO is ranked #7.

Click here for the additional POWR Ratings for CSCO (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Technology – Communication/Networking industry here.

Bottom Line

CSCO’s revenue is expected to grow 5% and 3.9% year-over-year in 2023 and 2024, respectively. Its EPS is expected to increase by 6.7% per annum for the next five years. Given the company’s growth potential and robust profitability, I think CSCO might be an ideal addition to your portfolio.

How Does Cisco Systems, Inc. (CSCO) Stack Up Against its Peers?

While CSCO has an overall POWR Rating of B, one might consider looking at its industry peers, AudioCodes Ltd. (AUDC), Extreme Networks, Inc. (EXTR), and Viavi Solutions Inc. (VIAV), which have an overall A (Strong Buy) rating.

CSCO shares were trading at $41.44 per share on Monday morning, up $1.24 (+3.08%). Year-to-date, CSCO has declined -32.55%, versus a -21.85% 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. More...

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