The Sun Won’t Set on This Giant: Cisco Systems, Inc. (CSCO)

Annual Growth

The key areas of growth were Services, Data Center, Wireless, Service Provider Video and Switching. The revenue from Switching grew by 3% y/y to $3.7, a solid growth in a mature market. The fastest growing segment was Data Centers, which grew by a staggering 65% to $0.55 billion, followed by a 24% growth in Wireless revenue, which were $0.52 billion for the period.

Service revenue grew by 10.5% at 2.6 billion and 20% annual growth in Service Provider Video revenue. The real concern for the company is negative growth in the routing segment, which declined by 6% to $1.95 billion. This decline was driven by a number of factors, including revenue timings, a maturing market and geographical shortfalls; Southern Europe and China were the most challenging regions. The collaboration revenue also fell by a significant 10% y/y to approximately $0.95 billion. This was mostly driven by shortfalls in Telepresense, which was somewhat offset by growth in conferencing, according to company management. Despite these shortfalls, the company maintained a positive outlook for the business with positive growth driven by video evolution.

Outlook

Cisco management expects growth in the range of 4% to 6%, resulting in revenue of $12.2 to $12.3 billion. The consensus revenue estimates for the quarter are $12.2 billion. Considering the positive outlook of the business, this guidance seems conservative and it seems highly likely that the company will beat consensus EPS estimates of $0.49 for the quarter.

Bottom-line

Cisco has successfully reported another stellar quarter and it seems the only way is up for Cisco. The company is giving a dividend yield of 2.7% and the stock has appreciated by 18% in the last 3 months. If we compare Cisco to International Business Machines, it doesn’t only give a higher dividend yield (IBM: 1.7%) but is still trading at a cheaper valuation. The P/E of IBM is 10.8x, whereas Cisco is trading at a P/E of 9.8x. Therefore, I believe Cisco is the best placed technology giant and the surest bet in the enterprise segment.

The article The Sun Won’t Set on This Giant originally appeared on Fool.com and is written by Mohsin Saeed.

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