Hottt – Cisco Systems (CSCO)

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About Cisco Systems Inc.

Cisco Systems Inc. is the technology company that engages in the design, manufacture and sales of Internet Protocol based networking products and services related to the communications and information technology industry. The firm has its operations in various countries across the globe. Headquartered in San Jose, CA, the company has gone through various ups and downs. However, the company’s ability to innovate its products continuously in the area of its core competencies has earned it a name for itself. 

Recent news

Today, according to the media sources, Cisco systems has planned to acquire a semiconductor company by the name of Lextra. The amount for which this acquisition is expected place is reported to be $660 million and some of the amount is going to be paid in cash while the reaming in the form of equity awards. The deal is forecasted to be closed in third quarter of the on-going fiscal year.

Luxtra uses silicone phtonics to build build integrated optics capabilities for enterprise data centers and other customers. Luxtra is expected to be incorporated by Cisco through its intent-based networking portfolio. After the announcement of this deal, the shares of Cisco are up by 0.7 percent. This means that the market is reacting positively to this news.

It is to be noted that the company announced its new intent-based networking program in the fiscal year 2017.

Financial performance

Over the span of last three years, the growth in revenue has been lackluster as it grew on average by 1.15 percent per year. However, the company has streamlined its operations and this has resulted in the expansion in its operating margins. During the same period, the company’s operating profit has went up by 6.80 percent on average.

Future triggers of the company

The future catalysts that are going to drive the value of the company in 2019 are:

  • Acquisitions such as Luxtra to increase the portfolio of its offerings
  • Persistent increase in its revenue on average. (Generated high quarterly revenue in third and fourth quarter of fiscal year 2018)
  •  Well positioned in the market cloud-based solutions
  • Strong growth of double-digits in security segment i.e. 12 percent in FY18. This trend is expected to continue in the next year.
  • Increase in the recurring revenue as a percentage of total revenue. It is now 32 percent.
  • Subscriptions as a percentage of software revenues are now 56 percent.

In light of the past performance and the above triggers, the stock is expected to give exuberant performance in 2019.  The stock is now trading at the P/E ratio of 169.16x with the dividend yield of 1.32 percent. Further, according to the consensus forecasts the target price for the next year is $52.46. This amounts to the increase of 18.5 percent in terms of capital gains and with the dividend yield of 2.88 percent, the total is 21.38 percent.

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