Cisco Systems, Inc. (CSCO): Three Reasons to Buy This Connectivity Powerhouse

Demand for the products and services that Cisco Systems, Inc. (NASDAQ:CSCO) provides is supported by strong secular tailwinds, and the company has the competitive strength to translate that demand into growing profits for its shareholders.

By the numbers

Considering its quality and growth prospects, Cisco is trading at very moderate valuation levels. At a P/E ratio around 14.3 the stock is trading near the low end of its historical valuation range, so it still has plenty of upside room if the company continues executing as expected.

Not only has the company been reporting better than expected earnings over the last quarters, but key strategic segments are running at full speed. Sales in the video division increased by 30% in the last quarter, wireless delivered a growth rate of 27% and data centers increased revenue by a whopping 77% annually. It looks like Chambers and his team made the right decision by expanding into these areas.

Capital distribution is another big plus for investors in Cisco Systems, Inc. (NASDAQ:CSCO); the company pays a 2.9% dividend yield, which should provide a limit for downside risk. Management has committed to return 50% of free cash flow to shareholders on an annual basis, and the company has more than $47 billion in balance sheet cash, so there are some good reasons to expect growing dividends and share repurchases over the next years.

Bottom line

Cisco is a high quality company with rock solid competitive advantages and enormous opportunities for growth thanks to increasing demand for connectivity equipment and related services in the long term. In addition to that, the stock is trading at an attractive valuation and rewarding shareholders with juicy capital distributions. There are some strong reasons to consider a long position in this connectivity leader.

The article Three Reasons to Buy This Connectivity Powerhouse originally appeared on Fool.com and is written by Andrés Cardenal.

Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.