Cisco Systems (NASDAQ:CSCO)
Cisco Systems stock surged 4% in after-hours trading on Aug. 17 after reporting fourth-quarter and full-year 2022 earnings. The networking hardware and software maker’s revenue was $13.1 billion, essentially flat from a year ago but $320 million over analysts’ projections. Adjusted earnings fell 1% to $0.83 per share, above expectations by a cent.
Cisco Systems (NASDAQ:CSCO) growth was weak, but the company expects it to accelerate in 2023. Let’s examine its growth, problems, and values to see if it’s a good investment.
Cisco’s Key Businesses
Cisco Systems (NASDAQ:CSCO) reconfigured its four primary businesses into six new ones in fiscal 2022 (ended July 30): Secure, Agile Networks (46% of revenue), Internet for the Future (10%), Collaboration (9%), End-to-End Security (7%), and Optimized Application Experiences (1%). Investors need a clear picture of their companies. How did these six parts do last year?
Slower switches and enterprise routers offset better sales of access-point, wireless, and server-based devices. Internet for the Future faltered due to falling cable, edge, and optical equipment sales and unfavorable comparisons to its March acquisition of Acacia. The company stated sluggish hardware sales were due to supply difficulties, not lower demand.
Cisco Systems (NASDAQ:CSCO) Collaboration business rose in the fourth quarter as it sold more on-site collaboration hardware, while meetings and calling product sales slowed in a post-lockdown market. Cisco is still fighting against Zoom Video Communications, which is anticipated to increase 11% this year, and other videoconferencing competitors.
Cisco Systems (NASDAQ:CSCO) faster-growing software divisions did well. End-to-End Security grew quickly, while Optimized Application Experiences benefited from ThousandEyes’ development.
Cisco Systems Stock: Optimistic Forecast
Cisco Systems (NASDAQ:CSCO) fourth-quarter figures were mixed, but management expects first-quarter and full-year sales to climb 2% to 4% yearly.
That would be an improvement from fiscal 2022’s 3% revenue growth and put it on track to reach its long-term aim of 5% to 7% CAGR between fiscal 2021 and fiscal 2025.
This aim was given in September via conference call. CFO Scott Herren claimed Cisco Systems (NASDAQ:CSCO) might accelerate despite “supply constraints” in fiscal 2023. Herren said supply chain limits eased in the fourth quarter but will create obstacles in fiscal 2023.
Analyst estimates for 2022, 2023, and 2024 are all well below their peak levels and may have just begun to bottom out. It won’t be known if estimates have decreased further until the corporation releases its fiscal fourth quarter results in the middle of August.
Cisco Systems Stock: Stabilized Gross Margins
The gross margin for items declined to 61.3% due to the rising component, freight, and logistics costs. Adjusted service gross margin grew but couldn’t offset product margin decline.
Cisco Systems (NASDAQ:CSCO) forecasts adjusted gross margin to steady at around 63% to 64% in Q1 2023. Brighter prospects suggest supply restrictions are diminishing.
Cisco Systems (NASDAQ:CSCO) forecasts first-quarter adjusted EPS to be flat to 2% higher year over year and 4% to 6% higher for the entire year. This could accelerate the company’s adjusted EPS growth from 4% in fiscal 2022 to 5% to 7% between fiscal 2021 and fiscal 2025.
Cisco Systems Stock is a Safe Bear Market Buy
At $50, Cisco Systems stock is 14 times its adjusted EPS expectation for fiscal 2023 and yields 3.2%. LAs interest rates rise, low valuation and high yield should make it a safe tech stock.
The company’s stable growth, regular profitability, and $19.3 billion in cash, cash equivalents, and investments should make it a recession-proof stock. Cisco Systems stock may be a good buy and worthwhile to keep until the bear market ends.
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