Cisco Systems, Inc.: CSCO Stock to Benefit from Transformation

cisco stockMore Upside for Cisco Stock

Cisco Systems, Inc. (NASDAQ:CSCO) is in the news again, as it looks to grow through acquisitions in the digital world. Cisco stock is holding steady and should continue to gain as the company enters high-growth areas.

Cisco has announced its intent to acquire AppDynamics Inc (NASDAQ:APPD), which is into application intelligence software. The privately held software company’s cloud application and business monitoring platform enables the world’s largest companies to improve application and business performance. Cisco Systems, Inc. will acquire AppDynamics for approximately $3.7 billion in cash and assumed equity awards. (Source: “Cisco Announces Intent to Acquire Application Performance Monitoring Leader AppDynamics,” Cisco Systems, Inc., January 25, 2017.)

Rowan Trollope, who is the company’s senior vice president and general manager of Cisco’s “Internet of Things” (IoT) group and “Applications Business” group, explained the synergy of the acquisition. He said that the new combination will help Cisco provide end-to-end visibility and intelligence from the network through to the application which, combined with security and scale, will help Cisco drive a new level of business results. Cisco stock is trading at around $30.00 levels at present.

Rowan also emphasized how applications have become the lifeblood of a company’s success, and keeping these applications running and performing well has become critical. The acquisition is another step in the transformation process that Cisco has been busy with for quite some time now. CSCO stock is also holding up pretty well and may see some upside in the future as the networking company strives for leadership in growth areas like Internet of Things (IoT), cloud computing, and security.   

David Wadhwani, the CEO and president of AppDynamics, explained how his company is empowering businesses to build and successfully run the applications they need to compete in today’s digital world. CSCO stock should benefit as the company acquires dominating players in the software businesses.

Legacy technology companies in the United States are using their resources for making acquisitions in the new growth areas and, with Donald Trump at the helm, there could be many such deals in the future. Cisco has a large cash hoard overseas and, with Trump’s plans to provide incentives to bring corporate money back to the U.S., companies like Cisco may use it to further their expansion and declare dividends, both of which stand to benefit Cisco stock.  

Cisco Executive Chairman John Chambers had said at the World Economic Forum meeting at Davos this month that U.S. business leaders were optimistic over the Trump presidency, which they think will boost economic and job growth. Chambers had further said that the anxiety over some of Trump’s positions on trade and his volatile Twitter persona should be set aside: “Give the new administration time. Let them learn.” (Source: “Cisco’s Chambers Sees Trump Presidency Good for U.S. Business,” The Wall Street Journal, January 17, 2017.)  

According to Chambers, the reason for this optimism was Trump’s focus on reducing federal regulations and the likelihood of providing tax benefits to companies to bring back more than $2.0 trillion in cash that they are holding overseas. Cisco has a large cash hoard of over $60.0 billion overseas.

As Cisco focuses on its transition and stands to gain from the Trump presidency, Cisco stock should continue to climb higher. Given its new strategy and overseas cash, investors should have no reason to worry over CSCO stock.