Cisco Systems (CSCO) Stock Analysis

NOTE:  Cisco Systems’ acquisition of cybersecurity software company Splunk (SPLK) is an aggressive strategic play in cybersecurity! Its product and technologies include infrastructure platforms; applications; security and other products.

Cisco Systems (CSCO) Intrinsic Value – Margin of Safety Analysis            

(updated December 2024)

Normalized Diluted Earnings Per Share (TTM): $2.33
Free Cash Flow Per Share: $2.82
Cash Flow From Operations Per Share (TTM): $3.01

Estimated Intrinsic Value: $55

Target Buy Price Based on Required Margin of Safety =  $48
(Required Margin of Safety Based On Risk Stability Grade:

A = 0%, B = 20%, C = 40%, D = 60%, F = 80%)

Target SELL Price Based on Estimated Intrinsic Value = $69
(Allow Overvaluation Adjusted by Risk Stability Grade:

A = 40%, B = 25%, C = 15%, D = 5%, F = 0%)

Risk / Stability Grade: B

A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.

B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.

C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.

D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.

F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.

Financial Risk Grade: A-

A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.

B grade indicates a very low probability for a dividend cut.

C grade indicates a low probability for a dividend cut and/or average safety risk.

D grade indicates there are issues that should be considered concerning future dividend payments.

F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.

Business Quality Grade: C+

A grade indicates earnings quality is high or far above average.

B grade indicates earnings quality is good and/or above average.

C grade indicates earnings quality is acceptable or average.

D grade indicates earnings quality is poor and requires thoughtful due diligence.

F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.

Earnings Report: 10/31/24

AAAMP Portfolios Position Disclosures:
Treasure Trove Dividend (TTD) – None
Global Dividend Value (GDV) – LONG
Dividend Growth & Income (DGI) – LONG
Global Value (GV) – None
Global Value Aggressive (GVA) – None
Global Conservative Income (GCI) – LONG
Global Aggressive Income (GAI) – None

Company Description

Sector: Technology
Industry: Communications Equipment

Cisco Systems designs and sells a broad range of technologies that have been powering the Internet since 1984. Across networking, security, collaboration, applications and the cloud, Cisco is integrating intent-based technologies to help customers manage more users, devices and things connecting to their networks.

Cisco’s largest businesses are selling networking hardware and software (where it has leading market shares) and cybersecurity software like firewalls. It also has collaboration products, like its Webex suite, and observability tools.

Customers include businesses of all sizes, public institutions, governments, and service providers. Cisco Systems, Inc. is the world’s largest hardware and software supplier within the networking solutions sector.

SWOT Analysis For Cisco Systems

Strengths

Cisco Systems has the management and financial strength to successfully transform itself from a company emphasizing individual products to a solutions and services company with a much higher percentage of recurring subscriptions and revenue than in the past.

Cisco has a large established clientele that is producing a steady increase of revenue from high margin services. Customer loyalty provides them a built-in advantage to be the provider of new services.

The company is one of the top 20 Research & Development ($31 billion the last five years) investors in the world. Their broad product line up, R&D, and continual pursuit of the “next big thing” keep Cisco at the forefront of constant change.

Weaknesses

The communications sector is in a mode of continual and aggressive change requiring constant re-investment and innovation. Cisco’s older high margin products are under pricing pressure that is expected to lower margins on those products.

Opportunities

Cisco Systems has a history of making key acquisitions that fill gaps in its products or services. This has included buying many small companies that might have been viable competitors to parts of their business. The company has made it a policy to maintain a pristine balance sheet that allows for this kind of active investing (i.e. Splunk (SPLK).

CSCO has has stated approach to innovation: Build (organic growth), Buy (acquisitions), Partner, Invest (start-ups, venture funds), and Co-Develop (industry-changing ideas built on the network).

Threats

Cloud based solutions are causing the sales of Cisco’s older products to decline. It’s highly likely that gross margins will deteriorate over time. Technology changes quickly and competition is fierce.

Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.