Like many established technology companies, Cisco Systems, Inc. (NASDAQ:CSCO) has developed a reputation as a stable but stodgy firm that issues regular dividend payouts and rarely makes exciting or noteworthy announcements. However, the company’s most recent earnings report provided a momentary break from its ho-hum stream of news releases and corporate announcements. The report exceeded market-watchers’ expectations by a substantial degree and indicated that Cisco still has some life left in its shares. Unsurprisingly, the company’s stock jumped during the trading session that followed the release.
An impressive earnings report
Cisco Systems, Inc. (NASDAQ:CSCO)’s most recent earnings report is impressive on several levels. Its sales for the first nine months of fiscal 2013 increased by nearly $2 billion to over $36 billion, and its GAAP earnings per share figure increased from $1.13 to $1.44. Meanwhile, the company’s cash reserves increased, and its cash flow did not dip as much as feared. Overall, Cisco beat the market’s expectations on virtually every important metric.
It should be noted that Cisco Systems, Inc. (NASDAQ:CSCO) is not the only old-line tech giant that has issued an excellent quarterly earnings report this year. In late May, struggling Hewlett-Packard Company (NYSE:HPQ) reported surprisingly robust revenue and earnings figures that exceeded analysts’ expectations by an embarrassing margin. The stock jumped by more than 10% in response to the news.
How is HP and Juniper compared to Cisco?
As a provider of a broad range of server hardware, networking devices, wireless products and value-added services, Cisco competes with some of the biggest names in the technology business. Although it does not produce PCs, laptops or tablets, it does compete directly with Hewlett-Packard Company (NYSE:HPQ) in a number of key operational areas. It also competes with the smaller, more narrowly focused Juniper Networks, Inc. (NYSE:JNPR).
Cisco Systems, Inc. (NASDAQ:CSCO)’s market capitalization is massive. At over $120 billion, it exceeds that of Hewlett-Packard by a factor of three and dwarfs Juniper’s valuation by a factor of 15. In 2012, Cisco earned $9.6 billion on revenue of nearly $48 billion. By comparison, Hewlett-Packard Company (NYSE:HPQ) had some hard times but recently reported a larger than expected quarterly operating income on revenue that declined by 10% to $26.7 billion. Its stock price is up 41% so far in 2013. For its part, Juniper Networks, Inc. (NYSE:JNPR) earned $261 million on $4.4 billion in gross revenue.
Cisco Systems, Inc. (NASDAQ:CSCO)’s balance sheet is characterized by a modest debt load of just over $16 billion and an impressive cash hoard of over $47 billion. Hewlett-Packard Company (NYSE:HPQ) suffers from a debt burden of over $28 billion and maintains a cash reserve of around $12.6 billion. Juniper has $1 billion in debt and about $2.6 billion in cash.
Recent stock-price performance
After trading in a narrow range between $19 and $22 per share for most of 2013, Cisco Systems, Inc. (NASDAQ:CSCO) broke out in the wake of its earnings report. These days, Cisco trades above $23 per share and shows few signs of giving up the bulk of its post-report gains. Despite this strong performance, the company still looks cheap: At $23.50 per share, its price-to-book ratio remains an industry-lagging 2.2. This suggests that some investors remain skeptical of Cisco’s ability to sustain its momentum.
Industry outlook and long-term performance
Although it is important to remain level-headed in response to encouraging earnings news, some investors believe that the latest earnings figures from Cisco and Hewlett-Packard point to a real turnaround in the hardware and software markets. Although both companies are saddled with some legacy operations that act as drags on their balance sheets, these firms are well-positioned to operate in a cloud-centric world. Since Hewlett-Packard Company (NYSE:HPQ) will probably need to downsize its PC and hardware operations even further, its renaissance remains more of a medium-term goal. By contrast, Cisco looks to be in an exceedingly strong strategic position.
Is it worth a bite?
In light of the fact that Cisco Systems, Inc. (NASDAQ:CSCO) remains cheap, the company may offer an exciting opportunity for investors who wish to gain exposure to a stable technology sector and leverage a yield of better than 2.5% at the same time. Even after its encouraging earnings report, Cisco is unlikely to post explosive growth numbers. As such, the company offers few opportunities for those who seek out fast-growing technology firms for quick trading profits. Given its size and operational activities, Cisco simply is not built to deliver such performance.
However, this does not mean that the company has no place in a medium-term portfolio. Cisco is well-positioned to capitalize on the accelerating transition to cloud-based storage and wireless connectivity, and the company is likely to continue to post better-than-expected earnings numbers. Investors who currently lack exposure to this industry would do well to look at Cisco at these levels.
The article After Impressive Earnings Report, Is It Still Cheap? originally appeared on Fool.com and is written by Mike Thiessen.
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