Cisco Systems, Inc. (CSCO): Is The Company in Transition Mode?

Alcatel Lucent SA (ADR) (NYSE:ALU)’s new CEO Michel Combes is an experienced businessman and is well known for his cost-cutting measures. His cost-reduction plans may bring some improvement to the company’s performance and are also part of the reason why Deutsche Bank recently upgraded the stock from Hold to Buy with a price target of $2.34.

The company sells more than $20 billion in telecom equipment each year. With strong growth in IP and fixed-networks segments, along with strong demand from China’s TD-LTE expansion, both Alcatel Lucent SA (ADR) (NYSE:ALU)’s bottom line and top line should improve in coming years. Analysts expect the EPS to reach $0.58 by 2015 from -$0.25 in 2013. That’s a gain of more than 300%.

VMware, Inc. (NYSE:VMW) augmented the SDN fray with its acquisition of Nicira. VMware’s NSX software, which draws from the company’s existing vCloud Networking and Security software in addition to the Nicira offering, lets customers spin up virtual switches, firewalls, routers and other network elements in conjunction with hypervisors regardless of whether they come from VMware.

VMware, Inc. (NYSE:VMW) has come up with a new hybrid cloud service, which is expected to boost revenue for the company in the coming years. The company has a solid balance sheet with approximately $4.7 billion in cash and just $450 million in debt. Analysts currently have a mean target price of $97.36 for VMware, Inc. (NYSE:VMW), and are predicting an EPS of $3.23 with revenue of $5.2 billion, which is 13.3% higher than 2012 revenue.

Conclusion

It will take time to see the final outcome of Cisco’s strategic transition, but with the above mentioned events in mind the company seems to be back on track. Cisco Systems, Inc. (NASDAQ:CSCO) currently has a low P/E of 9.8, which makes it a value buy. When the Street takes its future growth prospects into account, the stock should trade at higher valuations which would be accretive to the stock price.

The article Is Cisco in Transition Mode? originally appeared on Fool.com and is written by Hemant Singhi.

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