Tech stocks have lost substantial value lately as part of the broader tech sell-off on concerns over the Federal Reserve’s forthcoming interest rate hikes, intensifying global chip shortage, and rising input costs. Although strong corporate earnings in the tech sector helped the tech-heavy Nasdaq Composite rebound recently, the unexpected drop in Amazon.com’s (AMZN) performance weighed heavily on the market sentiment, making the index face its biggest monthly decline in April 2022 since the 2008 financial crisis.
However, the surging demand for advanced and secure networking equipment and solutions, along with significant corporate and government funding to improve broadband infrastructure and the growing deployment of 5G technology, should keep driving the industry’s growth. The global networking equipment market is expected to grow at a 4.4% CAGR to reach $136.93 billion by 2027. The global network infrastructure market is expected to grow at a 3.9% CAGR to $229.74 billion by 2026.
Given this background, fundamentally-sound networking stocks Cisco Systems, Inc. (CSCO) and Extreme Networks, Inc. (EXTR), which each have declined more than 20% year-to-date, could be ideal bets now.
Cisco Systems, Inc. (CSCO)
CSCO designs and manufactures Internet Protocol (IP) based networking products and services related to communications and information technology worldwide. The company sells its products and services directly and through systems integrators, service providers, resellers, and distributors.
On April 27, 2022, Comcast Corporation’s (CMCSA) subsidiary Comcast Business expanded its strategic partnership with CSCO through the addition of Cisco SD-WAN powered by Viptela to its managed SD-WAN solutions portfolio, which will help the company to offer enterprise customers comprehensive, global secure networking solutions. By integrating cloud optimization, security, and advanced analytics, CSCO’s Cisco SD-WAN solution enables micro-segmentation and identity-based policy management, extended end-to-end visibility into network health and performance, and integrated 4G LTE and 5G connectivity functionality. This should help CSCO nurture its long-term partnership with Comcast Business.
CSCO’s total revenue for its fiscal year 2022 second quarter ended January 29, 2022, increased 6.4% year-over-year to $12.72 billion. The company’s non-GAAP gross profit came in at $8.33 billion, indicating a 4% year-over-year improvement. Its non-GAAP operating income was $4.36 billion for the quarter, up 6.2% from the year-ago period. CSCO’s non-GAAP net income increased 5.5% year-over-year to $3.55 billion. Its non-GAAP EPS came in at $0.84, up 6.3% from the prior-year period. As of January 29, 2022, the company had $6.73 billion in cash and cash equivalents.
The consensus EPS estimate of $3.44 for fiscal 2022 ending July 31, 2022, represents a 6.8% year-over-year improvement. It surpassed the consensus EPS estimates in each of the four trailing quarters, which is impressive. Analysts expect the company’s revenue to reach $52.85 billion for the same fiscal year, indicating a 6.1% rise from the prior-year period. The company’s EPS is expected to grow at a rate of 7.1% per annum over the next five years. The stock has lost 21.7% year-to-date and closed the last trading session at $48.98.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B grade for Stability. Click here to see the additional ratings for CSCO’s Growth, Value, Momentum, and Sentiment.
CSCO is ranked #5 of 55 stocks in the Technology – Communication/Networking industry.
Extreme Networks, Inc. (EXTR)
EXTR provides wired and wireless network infrastructure equipment, software, and services for enterprises, data centers, and service providers. The company markets its products to business, governmental, healthcare, service provider, and educational customers, focusing on corporate enterprises and metropolitan service providers worldwide.
On January 10, 2022, EXTR, in partnership with NetNordic, a Sweden-based company specializing in networking and communication solutions, established one of the largest cloud-managed network infrastructures in Borås Stad, Sweden. This new Infrastructure aims to deliver faster and more advanced connectivity, extending secure public Wi-Fi while automating and simplifying network management for the IT team. EXTR should contribute significantly to the transition of Borås Stad to a Smart City.
For its fiscal 2022 third quarter ended March 31, 2022, EXTR’s total net revenues increased 12.7% year-over-year to $285.51 million. The company’s non-GAAP gross profit came in at $165.61 million, representing a 6.2% year-over-year improvement. Its non-GAAP operating income came in at $35.66 million for the quarter, indicating a 24.6% rise from the prior-year period. EXTR’s non-GAAP net income came in at $27.42 million, up 32.6% from the prior-year period. Its non-GAAP EPS increased 31.3% year-over-year to $0.21. The company had $166.57 million in cash as of March 31, 2022.
Analysts expect EXTR’s EPS to improve 35.1% year-over-year to $0.77 in fiscal 2022, ending June 30, 2022. It surpassed consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $1.10 billion for the same fiscal year indicates a 9.3% year-over-year improvement. The company’s EPS is expected to grow at a rate of 20% per annum over the next five years. The stock has lost 38.9% year-to-date and ended the last trading session at $9.60.
It’s no surprise that EXTR has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
It has an A grade for Growth and a B grade for Quality and Value. Click here to see the additional ratings for EXTR (Sentiment, Momentum, and Stability). EXTR is ranked #3 in the same industry.
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CSCO shares were trading at $49.01 per share on Monday afternoon, up $0.03 (+0.06%). Year-to-date, CSCO has declined -21.67%, versus a -14.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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