Cisco Systems Is a Terrific Buy

Cisco Systems (CSCO) announced third quarter ended April 30, 2016 total non-GAAP revenue of $12.0 billion, up 3 percent year-over-year from $11.6 billion during the same period last year. Going forward, Cisco’s year-over-year revenue growth for fourth quarter of 2016 is estimated to be in the range of 0% to 3%.

Cisco declared third quarter of 2016 non-GAAP net income of $2.9 billion or $0.57 per share, up 3 percent year-over-year from $2.8 billion or $0.54 per share in third quarter of 2015. Moving ahead, the company projects fourth quarter of 2016 non-GAAP earnings per share to be in the range of $0.59 to $0.61.

Strong growth

The global networking equipment manufacturer reported continued year-over-year growths in both its top and bottom lines primarily driven by a solid Product revenue advancement enabled by SP Video, Collaboration and Security which grew by 18%, 10% and 17% respectively.
Data Center and Wireless each grew by 1%, though NGN Routing and Switching declined by 5% and 3%, respectively.

The year-over-year sales growth of Cisco is continuing to weaken due to falling customer demand for the company’s advanced networking equipment with several key corporate customers having decided to delay their upgrade schedules till they gain greater confidence about the falling worldwide stock trend not being an indicator of a sharper economic breakdown.

Further, Cisco is continuing to feel the heat from other major technology providers such as Google, Inc., who create their specific software and install their self-made equipment while running some major distant data centers handling significant computing output and a majority of the global internet traffic.

The key networking giant needs to devise some innovative growth strategies to successfully counter the advancements and ongoing market capturing capabilities of its counterparts while holding its market share decline.

Importantly, Cisco announced and distributed the third quarter of 2016 cash dividend of about $0.26 per common share, or $1.3 billion of total dividend payments for the quarter by repurchasing nearly 27 million shares of its common stock at an average purchase price of $24.08 per share with a consolidated buying amount of $649 million. Further, the company has about $16.2 billion of total stock repurchase authorization still remaining as of now and in line with its continued commitment to deliver attractive shareholder returns.

Cisco’s third quarter of 2016 adjusted net product gross margin and gross margin were 64.5% and 65.2%, respectively. The adjusted product gross margin remained the same compared to the same period last year with ongoing productivity enhancements that were somewhat equalized by product mix and majorly by pricing.

Making smart moves

The international networking behemoth seems keen on expanding its overall quarterly gross margins amid a tough and highly-competitive global operating environment while delivering attractive shareholder returns through strategic and timely share repurchase programs.

Going forward, Cisco is witnessing significant expansion in its innovative set of products and networking solutions that include conferencing software and hardware. This notable customer traction coupled with key cost-optimization strategies being implemented by the company has enabled it to successfully grow its operating cash flows for the quarter to $3.1 billion, up 1 percent year-over-year from $3.0 billion during the same period last year.

In addition, Cisco has notably propelled its inorganic growth through strategic acquisitions made during the quarter including the Jasper Technologies acquisition that allows a cloud-enabled Internet of Things (IoT) service development platform to allow service providers and enterprises to introduce, handle and monetarily grow its global IoT services. Some other key acquisitions include the acquisitions of CliQr, Leaba, Synata and Acano which are believed to further grow the Cisco’s key services globally and add to its already robust products and services portfolio.

The well-planned organic and inorganic growth strategies of Cisco along with strategic cost-optimization efforts are expected to drive significant long-term company growth while allowing it to deliver attractive shareholder returns in the form of dividends and strategic share repurchases.


Overall, the investors are advised to “Buy” equity in Cisco Systems, Inc. considering the company’s significant long-term growth prospects being supported by its notable financial position with a healthy total cash position of $60.38 billion against smaller total debt of $24.60 billion only, encouraging the company to make future growth investments. The profit margin of 20.84% seems attractive. The PEG ratio of 1.15 indicates healthy company growth and somewhat better than the industry’s growth average of 0.93.
Published on May 25, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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