Technology is at the forefront of almost every industry, offering significant potential for growth and innovation. Investing in technology stocks can be an excellent long-term investment portfolio strategy.
I think quality tech stock Cisco Systems, Inc. (CSCO) could be a valuable addition to your portfolio for the long term. In this article, I’ve discussed why I think so.
CSCO announced a 3% increase in its quarterly dividend to $0.39 per common share compared to the previous quarter. This results in an annual dividend of $1.56 per share, which offers a yield of 3.14% on the current stock price. Additionally, the company has maintained an average dividend yield of 3.00% over the past four years. The company has raised dividends for 11 consecutive years.
The company’s dividend payouts have grown at a 2.8% CAGR over the past three years and a 5.6% CAGR over the past five years, indicating a strong commitment to shareholder returns and a steady growth in dividend payments over time.
CSCO reported a robust fiscal second quarter performance, surpassing revenue expectations and delivering record non-GAAP EPS and operating cash flow.
Chuck Robbins, chair and CEO of Cisco. “The modern, highly secure networks we are building serve as the backbone of our customers’ technology strategy. This, combined with the success of our ongoing business transformation and operational discipline gives me confidence in our future.”
Moreover, the tech company anticipates revenue growth between 9% and 10.5% year-over-year and non-GAAP EPS between $3.73 and $3.78 in the fiscal year 2023.
Furthermore, despite macroeconomic volatilities, shares of CSCO have gained 22.3% over the past six months and 15.8% over the past nine months to close the last trading session at $49.73. It has gained 4.4% year-to-date.
Let’s closely examine the factors that could influence the company in the long haul:
Recent Positive Developments
On February 27, 2023, CSCO and Mercedes-Benz collaborated to develop the greatest mobile office experience in Mercedes-Benz E-Class vehicles. This partnership with Mercedes-Benz, a leader in automotive luxury, marks a big step forward in delivering the flexibility the hybrid workforce demands.
On the same day, CSCO and T-Mobile US, Inc (TMUS) announced their plans to provide enterprises with CSCO Meraki’s first-ever 5G cellular gateways for fixed wireless connectivity, which should enable businesses to create rich and unique customer experiences by utilizing streamlined, scalable, and reliable network management services.
Since wireless communication is the future of connectivity, being at the forefront of the new 5G era is expected to offer considerable advantages to CSCO.
Moreover, on January 31, CSCO exhibited its new range of collaboration devices for Microsoft Teams and unveiled the new Cisco Table Microphone Pro, a digital and multi-directional table microphone for hybrid workspaces, along with audio interoperability advancements.
Such innovations are expected to advance hybrid workers’ experience by delivering more inclusivity and choice for meetings while improving the manageability, configuration, and security required by IT.
CSCO’s total revenue increased 6.9% year-over-year to $13.59 billion in the fiscal second quarter that ended January 28, 2023. Its gross margin grew 4.7% from the year-ago value to $8.43 billion, while non-GAAP operating income rose 1.1% year-over-year to $4.41 billion.
Furthermore, the company’s non-GAAP net income increased 2.6% year-over-year to $3.64 billion, while its adjusted EPS grew 4.8% year-over-year to $0.88.
Favorable Analyst Estimates
The consensus EPS estimate of $3.75 for the fiscal year 2023 represents an 11.8% improvement year-over-year. The consensus revenue estimate of $56.57 billion for the current year indicates a 9.7% increase from the prior year.
Moreover, analysts expect CSCO’s revenue to increase 11.9% year-over-year to $14.36 billion in the current quarter ending April 2023. Its EPS is estimated to increase by 11.3% year-over-year to $0.97 in the same quarter. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
CSCO’s trailing-12-month net income margin of 21.26% is 686.6% higher than the industry average of 2.70%. The stock’s trailing-12-month EBIT margin and EBITDA margin of 26.58% and 29.74% are higher than the industry averages of 4.53% and 9.87%, respectively.
In addition, CSCO’s trailing-12-month levered FCF margin of 25.56% is 320.6% higher than the 6.08% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 27.92%, 17.06%, and 11.79% are significantly higher than the respective industry averages of 2.69%, 1.97%, and 0.70%.
In terms of forward non-GAAP P/E, CSCO is currently trading at 13.24x, which is 34.8% lower than the 20.32x industry average. Its 0.49x forward EV/EBITDA multiple of 8.71 is 34.6% lower than the 13.31x industry average.
Additionally, the stock’s forward Price/Cash flow multiple of 12.77 is 28.9% lower than the industry average of 17.97x, while its forward EV/EBIT of 10.23 is 37.2% lower than the industry average of 16.31.
POWR Ratings Show Promise
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each 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.
In addition, CSCO has a B grade for Stability, in sync with its beta of 0.80. Its B grade in Sentiment aligns with optimistic analyst estimates.
CSCO is ranked #3 out of 49 stocks in the B-rated Technology – Communication/Networking industry.
Click here to see the other ratings of CSCO for Growth, Value, and Momentum.
CSCO’s strategic collaborations and modern and secure networks should drive its growth.
Additionally, CSCO is trading above its 50-day and 200-day moving averages of $48.67 and $45.85, indicating an uptrend.
Moreover, the tech stock exhibits high profitability, low valuation, and pays a stable dividend. Hence, the tech stock could be a solid buy for the long term.
How Does Cisco Systems, Inc. (CSCO) Stack up Against Its Peers?
While CSCO has an overall POWR Rating of A, investors could also consider looking at its A-rated industry peers: PCTEL, Inc. (PCTI) and Extreme Networks, Inc. (EXTR).
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CSCO shares were trading at $49.81 per share on Friday morning, up $0.08 (+0.16%). Year-to-date, CSCO has gained 5.39%, versus a 2.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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|PCTI||Get Rating||Get Rating||Get Rating|
|EXTR||Get Rating||Get Rating||Get Rating|
|TMUS||Get Rating||Get Rating||Get Rating|