Cisco: Time to Go Long?

Shares of Cisco have failed to break out following the company’s impressive Q1 beat. In Q1FY16, Cisco reported earnings per share of $0.59, $0.03 better than the consensus estimate of $0.56. Revenue for the quarter came in at $12.7 in-line with the analysts’ estimate of $12.7 billion. The company’s disappointing quarter was probably the reason why the shares didn’t budge.

However, Cisco’s long-term prospect looks good as it is hastening its ability to deliver on growth, belligerently driving its cloud business, and delivering unrelenting strength in its product revenue.

Cisco and Ericsson Partnerships

Recently, U.S networking company Cisco Systems announced partnership with mobile equipment maker Ericsson on 9th November.
This partnership forms an alliance between two tech giants that sell expensive equipment for syphoning Internet and telephone traffic. The company expects additional $1 billion revenue to be produced by 2018.

Today’s world is driven by cloud, mobility, and digitization, therefore the networks of future will need new strategy principles to make sure that they are independent, swift and highly secure. Both Ericsson and Cisco together will meet the challenge by proposing end-to-end leadership across network architectures comprising 5G, IP, cloud and the Internet of Things.

This partnership will allow clients to speed up their business transformation by drawing on the parties’ corresponding abilities comprising consulting, integration, and assistance to managed operations across IT and networks.

On the other hand, there is probability of threat in the prolonged existence of the partnership and the length of consistent support for recently built networks. It is also perceived that the partnership can hurl Cisco and Ericsson to competitive forte in an arena that is not only in the agony of trouble but also where business is excessively competitive.

Through this deal, Ericsson will apparently sell Cisco’s products all over the world and propose managed services to permit rapid integration of the networking company’s gear. Cisco gains an advantage by pushing its products through Ericsson, as Ericsson’s business covers almost 180 countries, which theoretically opens up an incremental revenue prospect for Cisco. Combined efforts of both the companies can avert a strike against Cisco’s rivals such as Juniper.

Conclusion

Cisco’s shares have failed to break out despite reporting a good quarter. While this may be frustrating for long-term investors, new investors can use this underperformance as an entry point as I believe Cisco is currently undervalued. The partnership with Ericsson will help Cisco move higher in the future and makes the stock a good buy.
Published on Nov 30, 2015
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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