As investors bask in the lavish returns of mega-cap tech stocks propelling the market to soaring heights, a different narrative unfolds for Cisco Systems (CSCO). Stepping into the shadows of the tech behemoths, Cisco’s market capitalization has waned below the $200 billion mark, marking a deviation from the current trajectory of tech giants.
Evaluating Cisco Systems’ Post-Earnings Performance
Amidst the tumultuous waves post-earnings, Cisco Systems, an eminent player in networking and cybersecurity solutions from San Jose, finds itself in a precarious position. Battling a downtrend since the start of the year, the company witnessed a decline of over 4%, with its market cap hovering at $194.6 billion.
Post the fiscal second-quarter earnings release on Feb. 14, Cisco reported an earnings per share (EPS) of $0.72, coupled with a 6% drop in quarterly revenues to $12.8 billion. Despite surpassing expectations, the stock faced a downward spiral as investors grappled with tepid guidance for upcoming quarters.
The company’s outlook for the third quarter hinted at a profit ranging from $0.84 to $0.86 per share, with revenue forecasts between $12.1 billion and $12.3 billion. A stark disparity from analysts’ projections of $0.92 EPS and $13.09 billion in revenue, signifying a mismatch in expectations.
In line with the disappointing results, management’s full-year forecast painted a similar picture. Expecting an EPS of $3.68 to $3.74 on revenues between $51.5 billion and $52.5 billion, the figures fell short of Wall Street estimates, paving the way for corrective measures such as a 5% workforce reduction.
Is Cisco Stock an Undervalued Gem?
While navigating through turbulent waters, Cisco’s subdued valuation beckons income-focused investors, offering a glimpse of a probable opportunity in the making.
At a forward price-to-earnings ratio of 12.99, Cisco stands at less than half the tech sector median earnings multiple of 25.11, showcasing a healthy discount to its historical averages. Additionally, with a forward price/sales multiple of 3.75, traders can capitalize on the discount relative to its historical average of 3.95.
Moreover, Cisco’s consistent dividend payout of $0.40 per share on a quarterly basis, translating to a 3.31% yield, coupled with a modest payout ratio of 43%, provides a stable income source. The company’s dividend hike streak spanning over a decade hints at sustainable payouts in the foreseeable future.
Analyst Perspectives on Cisco Systems’ Trajectory
Anticipation looms as analysts sculpt their predictions, envisaging an adjusted full-year earnings of $3.72 per share for the fiscal year concluding in July. A projected decline of 4.36% year-over-year in earnings accompanied by an 8.38% dip in revenue, positioning Cisco in a holding pattern.
Labeling CSCO as a “hold,” analysts remain cautious, with a blend of sentiments reflecting varied opinions. With 20 analysts in coverage, the stock’s verdict comprises 4 “strong buys,” 1 “moderate buy,” 14 “holds,” and 1 “strong sell,” underscoring uncertainty in the stock’s near-term outlook.
Wrapping Up the Evaluation on Cisco Stock
Despite the recent hiccups, Cisco’s resilient valuation and a robust dividend yield sculpt a compelling narrative for investors with an eye for income generation. The road ahead appears promising, buoyed by a favorable order trajectory projected for the subsequent quarters, signaling brighter prospects for the seasoned tech giant. For discerning traders scouting for reasonably priced tech stocks, Cisco stock beckons as a prospect worth delving into.