Analysts who have an optimistic outlook on CSCO stock anticipate that the firm would gain market share in comparison to Arista Networks in the cloud behemoth industry (ANET). By securing Microsoft (MSFT), Facebook (FB), and Amazon.com (AMZN) as customers, Arista was able to beat Cisco Systems Inc (NASDAQ:CSCO) to the market in the area of cloud data centers.
The market shifted its focus to “value” stocks in 2021, which coincided with the resumption of economic activity in the United States, which helped boost the performance of Cisco Systems Inc (NASDAQ:CSCO) shares. This year, CSCO stock has performed poorly due to increasing interest rates and problems with the supply chain.
Compare and contrast the CSCO stock and ANET.
However, there are analysts who believe Arista will maintain its position as the market leader in cloud networking.
According to an analyst working for Barclays named Tim Long, “We expect that the robust growth rate for ANET will be sustained for a few more years.” this was said in a report. “We anticipate that the market share for data center switching will continue to increase in the coming years. ANET has been able to successfully diversify its revenue streams outside its two main customers, Microsoft and Facebook.”
He added: “Cisco’s relative market share for the cloud business more than doubled between the years 2019 and 2021, but it has since leveled out. The transition to a model that is more software-based has been slow, and the increasing size of the product backlog has been a negative impact. Regardless, we see other businesses expanding faster in software despite having comparable backlog dynamics, which likely highlights the weaknesses of certain of Cisco’s stand-alone software solutions.”
According to the findings of an IBD Stock Check-up, the IBD Relative Strength Rating for Arista stock is 82 out of a maximum of 99 points. On the other hand, it is anticipated that spending on cloud infrastructure will decrease in 2023.
Cisco stock rose on August 17 after reporting fourth-quarter earnings. Cisco’s 2023 revenue forecast is above expectations. Analysts expect higher profit margins due to fewer supply chain problems.
Cisco Systems Inc has stated that it anticipates a sales rise in the range of 4% to 6% for the fiscal year 2023, whilst Wall Street anticipates a sales growth of 3% to $52.7 billion. The profit guidance that Cisco provided, which ranged from $3.49 to $3.56 per share, was in line with what analysts expected.
The trajectory of spending trends for cloud computing infrastructure, as well as those for business and telecom networks, will determine the forecast for CSCO stock. Concerns about a potential economic downturn in the United States continue to grow.
CSCO Stock Underperforms Vs. S&P 500
The price of Cisco stock increased by 41% in 2021. The stock of Cisco Systems Inc has declined by almost 35% in 2022 as a result of a bear market in the tech-heavy Nasdaq composite. In addition, CSCO stock has underperformed in comparison to the S&P 500 index, which has decreased by 23%.
The well-known technology company wants to move away from its primary business of selling network switches and routers in order to focus more on generating recurring revenue from subscription-based software and services.
However, Cisco’s transition to generating money from subscription software has hit a wall. For the past seven quarters, the percentage of total income contributed by software has been consistent at roughly 30 percent.
Businesses stopped investing in data networks during the coronavirus epidemic due to empty office space. As remote work becomes more common, business networks may lose importance.
Cisco stock must invest more in next-generation enterprise networks. The company helps clients build hybrid network architectures using on-premise and cloud-computing equipment.
CSCO Stock: Is There a Need for a Transformational Acquisition?
According to Moody, the balance sheet of CSCO shares shows that the company has more than $20 billion in cash available. The rate at which the corporation repurchases its own stock has been slowed down. There is speculation among industry observers that Cisco may engage in a significant acquisition of a software company.
In competition with Microsoft and Zoom Video Communications, Cisco intends to expand the capabilities of its Webex video conferencing platform (ZM). It recently completed the acquisition of Socio Labs in order to improve Webex events. Holographic long-range communication is something that Cisco is working on.
Scott Herren, formerly of Autodesk, has been hired on as the new Chief Financial Officer for Cisco (ADSK). In terms of the amount of cash that is held on the balance sheet, the business continues to be among the most successful American technology corporations. CSCO stock continues to find support among institutional investors despite having a dividend yield of only 4%.
The Growth of Cisco Systems Inc Through Its Acquisitions
Acquisitions have been responsible for a significant portion of Cisco’s revenue expansion. Analysts anticipate that Cisco’s margins will increase over the long term as a greater proportion of the company’s sales will come from software products.
In late January 2019, Cisco reached an agreement to acquire IMImobile, a company based in the United Kingdom that markets cloud communications software, in a transaction with a value of $730 million.
Cisco acquired a networking intelligence business known as ThousandEyes in May 2020 for close to one billion dollars.
In 2017, Cisco paid a total of $3.7 billion to purchase the software manufacturer AppDynamics. In the latter half of 2017, it paid $1.9 billion to acquire BroadSoft.
It was announced in July 2019 that Cisco bought Duo Security for a price of $2.35 billion, making this acquisition the company’s largest in the field of cybersecurity since its purchase of Sourcefire in 2013. By acquiring Duo Security, Cisco was able to strengthen its position in an emerging sector of cybersecurity known as zero trust.
Aside from mergers and acquisitions, the adoption of new accounting rules has been beneficial to the process of revenue recognition. The standards that are collectively referred to as ASC 606 mandate the immediate acknowledgment of multiyear software licenses.
CSCO Stock: Providing Guidance for the October Quarter
Adjusted earnings for the July quarter came in at 83 cents per share, which is a 1% decrease from the same period a year earlier. Including the impact of acquisitions, revenue remained unchanged at $13.1 billion.
According to FactSet, analysts predicted that Cisco Systems Inc would make 82 cents per share on revenue of $12.73 billion. The total amount of revenue was forecast to be $12.73 billion.
In comparison to the consensus expectation of 84 cents for the October quarter, Cisco projected a profit in the range of 82 cents to 84 cents for the period. Cisco anticipated growth in revenue of between 2% and 4%, in contrast to the predictions of stagnant growth in sales.
CSCO Stock: Upside From Data Centers?
The sales of the Catalyst 9000 switches have been a positive development for CSCO stock in recent times. Additionally, there is room for growth in Cisco’s data center upgrade business.
The so-called “internet cloud” is a collection of data centers the size of large warehouses. Racks of computer servers, data storage systems, and networking hardware fill every available space in them. The vast majority of data centers that support cloud computing have upgraded their communication hardware to support 100 gigabits per second.
The cycle of upgrading a data center to equipment capable of 400G has been postponed.
In 2019, Cisco agreed to acquire Acacia Communications for a total cash payment of $2.6 billion. The approval of the contract was held up by the government of China. In January 2021, Cisco increased the amount of money it was willing to pay for Acacia, bringing the total price to $4.5 billion.
On the bright side, shares of companies involved in computer networking appear to have regained their allure.
In addition, experts believe that Cisco is well-positioned as corporate purchasers transition to a form of networking technology known as software-defined wide-area networking, or SD-WAN. This technology will frequently utilize bandwidth that is available on the public internet. Because of SD-WAN, businesses have less of a requirement for expensive private data networks that are leased from telecom providers.
There’s no sign that 5G wireless networks will boost CSCO shares. Cisco will partner with DISH to market 5G commercial services to large corporations in 2021.
CSCO Stock: An Icon of Technology
Cisco was a key provider of internet network hardware from its 1990 IPO until the early 2000s. Customers included telecom companies and others. Cisco stock rose 100,000% before the dot-com bubble burst.
Following its breakthrough in October 2017, Cisco stock in 2019 reached new highs that hadn’t been seen since late 2000, during the height of the dot-com boom.
Late in 2018, CSCO stock made a bullish breakout from a double-bottom base, which occurred late in the previous year. The double-bottom chart design has an appearance that is similar to the letter “W.” It includes not one but two separate sell-offs. CSCO stock reached its all-time high of 64.28 on December 29, 2021, shortly after creating the double-base pattern.
As a result of the earnings report that was released on August 17, several technical ratings have improved.
Should You Buy Cisco Systems Inc Stock?
The current Relative Strength Rating for CSCO stock is 35 out of a possible 99 points, with 99 being the highest possible score. The RS rating of 80 or higher is typically associated with the finest stocks.
According to IBD Stock Checkup, Cisco stock has a Composite Rating of 61 out of a maximum possible 99. Cisco stock also has an IBD Composite Rating of 61. IBD’s Composite Rating is an easy-to-use rating that combines five different proprietary ratings into a single rating. A Composite Rating of 90 or higher is typical of high-quality growth companies.
IBD MarketSmith rated CSCO shares D+ for accumulation/distribution. The rating considers a stock’s 13-week price and volume changes.
The grade uses a scale from A+ to E to measure the purchasing and selling activity of institutions in a company. A+ indicates heavy buying from institutions, while an E indicates heavy selling. Consider the grade of C to be an average.
As of September 26, CSCO stock must establish a new base before becoming actionable.
Featured Image: Megapixl © Gmargittai
Author Valerie Remorosa