Cisco Systems has had a challenging year in terms of financial performance, with a 13% year-over-year decline in revenue for the fiscal third quarter. However, the company is making strides in shifting towards a software- and services-driven model, with software now accounting for 35% of total revenue. This move towards recurring revenue models has led to increased profitability, with a third quarter non-GAAP gross margin of 68.3%.
Management views 2024 as a transitional year for Cisco, with a focus on stabilizing core product sales and capitalizing on the demand for AI-based networking solutions. The company’s recent acquisition of Splunk is expected to enhance its capabilities in this area. Cisco has also partnered with Nvidia to ensure compatibility with AI GPU chips, which is expected to drive future growth. Guidance for the company anticipates a mid-single-digit revenue trajectory through fiscal 2026 and 2027, with further earnings per share leverage.
From an investment perspective, Cisco’s stock trading at a forward price-to-earnings (P/E) ratio below 13 times Wall Street’s median estimate for 2024 EPS of $3.70 is viewed as good value within the technology sector. Additionally, Cisco offers an attractive dividend yield of 3.4%, supported by strong cash flows and a robust balance sheet.
In conclusion, while Cisco’s recent financial performance has been mixed, the company’s shift towards a software- and services-centric model, coupled with promising growth opportunities in AI and cybersecurity, provides a foundation for long-term growth. Investors who are confident in Cisco’s ability to execute on its strategic initiatives may find owning shares in the company a viable option within a diversified portfolio.
Article Source
https://www.fool.com/investing/2024/07/06/is-cisco-stock-a-buy/
