Cisco Systems, Inc.: Great Moves for CSCO Stock
CSCO Stock Appears to Be Going in Right Direction
In 1999 and into early 2000, the technology sector was making ridiculous upside moves that saw many unproven small companies skyrocket from penny stock status to mid- and large-caps. At that time, the top networking stock was Cisco Systems, Inc. (NASDAQ:CSCO), trading at close to $80.00 per share. But, of course, it wouldn’t last long because CSCO stock, along with the rest of the technology sector, was sold off in a massive liquidation.
Cisco stock declined to a state of dormancy for years, with a tight sideways channel from 2004 to 2012. Once the darling star of Wall Street and investors, Cisco stock turned into dead money until 2012, when Cisco Systems began a rally from the $15.00 level that has lasted to 2016, with CSCO stock recently trading at a 52-week high.
Chart courtesy of StockCharts.com
In the view of many analysts, including myself, Cisco Systems appears to be becoming relevant once again under new leadership from CEO Chuck Robbins, who supplanted longtime Cisco Systems CEO John Chambers in July 2015. The change in stewardship could provide Cisco Systems with new ideas and a new direction, but with Chambers remaining as executive chairman and on the board of directors.
Cisco Systems by no means has the same price potential as momentum stocks like Facebook, Inc. (NASDAQ:FB) or Alphabet Inc. (NASDAQ:GOOG), but CSCO stock is attracting rising interest from Wall Street and investors.
My Bull Thesis for Cisco Systems
While Cisco Systems is still known for its networking solutions for the communications and information technology segments, CSCO stock is also establishing a firm foothold in growth technologies, including mobile, big data, cloud, optical, and security.
Cisco Systems just raised $6.25 billion in debt, which will add to its already massive war chest of about $38.0 billion in net free cash.
The critical task for Robbins will be to ramp up the growth metrics by expanding into more promising areas for growth, which would make Cisco stock intriguing again.
The current revenue picture looks muted. Revenues are predicted to grow a mere 1.1% this year and 2.9% to $51.23 billion in 2017. These are not metrics you want to see. (Source: “Cisco Systems, Inc. (CSCO),” Yahoo! Finance, last accessed September 16, 2016.)
But there are some encouraging signs for CSCO stock. The company has outperformed the quarterly EPS in four straight quarters.
More importantly, there have been six upward earnings per share (EPS) revisions for 2016 and five for 2017, which is bullish. (Source: Ibid.)
Cisco stock is also getting attention from Wall Street. Deutsche Bank increased its one-year price target for CSCO stock to $37.00, while UBS raised its target to $35.00.
While the new targets are encouraging, Cisco could surprise Wall Street if it can successfully shift into more growth areas and drive up its valuation from the current 12.19x 2017 EPS to a higher multiple in the 20x range.
Of course, there is no guarantee Cisco Systems will pull off its transformation, but with the current reasonable valuation and attractive PEG ratio of 1.37, CSCO stock has traction.
Cisco Systems trades at 2.45x book, which is not expensive and affords room to grow.
The CSCO stock chart shows a bullish golden cross and a multi-year uptrend, both of which suggest that the bulls are backing the company’s direction.
And while Cisco Systems may or may not retrieve its glory days, the next few years under Robbins will likely dictate if CSCO stock can track higher.