Shares of the worldwide leader in technology Cisco Systems, Inc. (CSCO) have gained 44.3% in price over the past year and 3.3% over the past month to close yesterday’s trading session at $56.76. The stock is currently trading 5.8% below its 52-week high of $60.27, which it hit on August 25, 2021. The company’s impressive performance can be primarily attributed to increasing spending trends for cloud computing infrastructure and corporate and telecom networks amid the continued shift to a hybrid working model. CSCO is based in San Jose, Calif.

CSCO recently launched Webex Hologram, an augmented reality meeting solution that delivers a seamless work experience. In addition, the stock recently witnessed a rise in hedge fund sentiment. 

Furthermore, CSCO is well-positioned to continue gaining in the near term relying on its solid fundamentals and accelerated pace of digitization.

Here is what I think could influence CSCO’s performance in the coming months:

Solid Financials

CSCO’s net revenue increased 8% year-over-year to $13.10 billion for its fiscal fourth quarter, ended July 31, 2021. The company’s non-GAAP operating income grew 10% year-over-year to $4.4 billion, while its cash flow from operating activities increased 18% year-over-year to $4.50 billion. Also, its non-GAAP EPS came in at $0.84, up 5% year-over-year.

Favorable Analyst Estimates

Analysts expect CSCO’s revenue to increase 6.1% this year and 4.3% next year. The company’s EPS is expected to grow 6.2% this year and 7.6% next year. And its EPS is expected to grow at a 6.5% rate  per annum over the next five years. Wall Street analysts expect the stock to hit $63.42 in the near term, which indicates a potential 11.7% upside. Also, of the 22 analysts that have rated WMT, 12 rated it Buy and 10 Hold.

High Profitability

In terms of trailing-12-month net income margin, CSCO’s 33.37% is 1,488.4% higher than the 2.10% industry average. Likewise, its 31.59% trailing-12-month ROCE  is 1,007.6% higher than the 2.85% industry average. Furthermore, the stock’s 7.81% trailing-12-month ROTA is 598% higher than the 1.12% industry average.

Reasonable Valuation

In terms of forward P/CF, CSCO’s 14.35x is 38.9% lower than the 23.50x industry average. Likewise, 13.11x its forward EV/EBIT is 36.5% lower than the 20.64x industry average. Moreover, the stock’s forward non-GAAP P/E and EV/EBITDA of 16.54x and 11.93x, respectively, are lower than the 25.09x and 16.84x industry averages.

POWR Ratings Show Promise

CSCO has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, CSCO has a B grade for Stability, consistent with its beta of 0.90.

The stock has an A grade for Quality, in sync with its higher-than-industry profitability ratios.

Beyond what I have stated above, we have also given CSCO grades for Value, Growth, Sentiment, and Momentum. Get all the CSCO ratings here.

CSCO is ranked #1 of 54 stocks in the Technology - Communication/Networking industry.

Bottom Line

CSCO is dominant in the software space. It reported impressive fourth-quarter earnings results and is due to report its fiscal year 2022 first quarter financial results on November 17, 2021. It is currently trading above its 50-day and 200-day moving averages of $55.83 and $54.95, respectively, indicating an uptrend. As a result, it could be wise to scoop up its shares now.

How Does Walmart (WMT) Stack Up Against its Peers?

CSCO has an overall POWR Rating of A. However, one  could also check out these other stocks within the Technology - Communication/Networking industry with an A (Strong Buy) rating: Extreme Networks, Inc. (EXTR) and Photronics, Inc. (PLAB).

CSCO shares were trading at $57.02 per share on Friday afternoon, up $0.26 (+0.46%). Year-to-date, CSCO has gained 31.16%, versus a 26.10% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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