Why Cisco Is a Buy

Cisco Systems (CSCO) announced third quarter ended April 30, 2016 total adjusted revenue of $12.0 billion, up 3 percent year-over-year from $11.6 billion during the same period last year. Going forward, the company estimates fourth quarter of 2016 non-GAAP revenue to grow year-over-year in the range of 0% to 3%.

Cisco declared third quarter of 2016 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 forecasts fourth quarter of 2016 non-GAAP earnings per share to be in the range of $0.59 to $0.61.

The key networking and communications system Development Company reported continued year-over-year expansion in both its top and bottom lines primarily driven by the robust execution, superior momentum in expansion verticals and ongoing solid margins.

Doing well

Cisco has continued to deliver significant year-over-year top line growths across several of its key operating segments including, Collaboration, Data Center, Wireless, Security, Service Provider Video, Other Products and Service.
The company delivered robust third quarter results amid tough global macroeconomic environment. Moreover, Cisco delivered robust cash flow from operations of over $3 billion and returned approximately $2 billion to the key stakeholders.

Cisco recently announced the launch of innovative services and cloud-centric security solutions that are developed on the company’s threat-based security architecture. The advanced security portfolio of Cisco allows companies with a significantly effective means to secure their digitally advanced business models.

The ongoing innovation delivering capabilities of Cisco through the development of technologically advanced and highly competitive security products and solutions is expected to drive sustainable long-term company growth while delivering attractive shareholder returns.

Impressive moves

On the acquisitions front, Cisco intends to strategically acquire CloudLock Inc. which is a privately established cloud-centric security company. CloudLock has mastered in implementing cloud access security broker (CASB) technology for providing enterprises with analytics and visibility through user behavior coupled with highly-sensitive data across cloud services that includes PaaS, IaaS and SaaS. The well-planned acquisition is expected to further improve Cisco’s already advanced security portfolio while developing on the company’s Security Everywhere plan, designed to enable superior protection ranging from cloud till the network and till the endpoint.

Going forward, the total number of electronic devices connected with the IP networks is estimated to be 3 times in excess of the worldwide population during 2020. The international IP traffic is expected to be recorded at 1.1 ZB annually or about 88.7 EB per month during 2016. Further, international IP traffic is believed to reach 2.3 ZB annually or 194 EB monthly.

The strategic acquisition of CloudLock is expected to enhance Cisco’s key product development capabilities while allowing the company to increasingly cater to the globally rising cyber security requirements.

Internationally, data traffic for mobile devices is estimated to grow eightfold from 2015 till 2020, expanding at a CAGR of 53 percent during the period and thus, reaching 30.6 EB on an average per month as of 2020. In addition, the worldwide mobile data streams are estimated to expand 3 times over the fixed IP circulations from 2015 till 2020. Particularly, international mobile data stream comprised 5 percent of overall IP traffic during 2015, and is expected to be approximately 16 percent of overall IP traffic as of 2020.

The consolidated 53% CAGR growth in Exabyte till 2020 is well-diversified across several key regions including, 45 percent of mobile traffic growth in Asia Pacific followed by 14% growth in Central Europe, Eastern Europe, Middle East and Africa. Therefore, a significant adaptation to smarter mobile equipment is believed to drive significant demand for advanced mobile devices thus, hugely benefiting Cisco.

The consistent expansion in demand for technologically-superior mobile devices is expected to drive notable and sustainable long-term company growth while allowing it to offer attractive shareholder returns.


Overall, the investors are advised to “Buy” equity in Cisco Systems, Inc. considering the company’s significant near-term and long-term growth prospects with PEG ratio of 1.27. Moreover, Cisco has a solid financial position with notable total cash of $63.51 billion against smaller total debt position of $28.59 billion only, encouraging the company to make future growth investments. The profit margin of 20.72% also seems impressive.
Published on Aug 11, 2016
By Subhen Mittra

Copyrighted 2020. Content published with author's permission.

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