Cisco Systems (CSCO -0.37%) reported a solid fiscal Q4, as well as a record-setting fiscal 2012, and for a hot minute it appeared shareholders were finally going to be rewarded. Cisco has meandered near the bottom of its industry from a valuation perspective, primarily on fears the U.S. enterprise market isn't ready to rebound any time soon. At last, patient owners of Cisco would get their due -- right?
Past, present, and future
The 11% jump in Cisco's share price the week or so following the Aug. 15 fiscal Q4 earnings announcement was awfully short-lived, lasting no more than a week or so. The slow but steady decline since the brief rise could be the impetus for growth and income investors to avoid Cisco -- it'd be hard to blame you.
Though a surprisingly decent enterprise market (particularly domestically) was cited as the reason Cisco reported record results in fiscal Q4, it's now being blamed for why Cisco is unlikely to meet analyst expectations. The consensus among analysts is for Cisco to underperform on the top line, missing the average estimate of $11.8 billion in revenues.
Even with the lowered revenue expectations, most analysts foresee Cisco hitting earnings goals of $0.46 a share, as cost-cutting initiatives will positively impact operating margins, and ultimately the bottom line.
When you take the pulse of analysts, and the market as a whole, it'd be easy to come to the conclusion Cisco is on a fast track to nowhere. So-so revenue, so-so earnings, and a global market wrought with concerns.
As it happens, anything close to the $11.8 billion in revenue analysts predict would be a nearly 6% jump compared to the year-ago period. The $0.46 a share in estimated earnings for Cisco's fiscal Q1 is a non-GAAP figure, so comparing it with the $0.33 a share in GAAP net earnings from the year-ago period is tough. But if last quarter's $0.11 difference between GAAP and non-GAAP is even close, Cisco will show a year-over-year improvement in earnings. If that's disappointing, can you imagine what impressive looks like?
As far as Cisco's financial statement, you'd be hard-pressed to find many negatives. Operating cash flow is off the charts, and with nearly $49 billion in ready cash as of fiscal Q4, Cisco's outstanding 3.35% dividend yield won't be a problem to maintain.
So what about comparisons to others in the industry? At $89.5 billion in market cap, Cisco is the undeniable leader in networking. Competitors Ericsson (ERIC 3.14%), Juniper Networks (JNPR 0.14%), and Motorola Solutions (MSI 1.64%) can't approach Cisco's size and market share, including data centers. And with the undeniable opportunities in cloud computing, data centers will be a key growth area in the months and years ahead.
Relative to price, Cisco's trailing 11.3 P/E is the cheapest option of the four, and the forward P/E of 8.1 makes it an absolute steal. Based on current earnings multiples, Ericsson's 14.1 P/E is the only one even close. Motorola Solutions and Juniper are two and four times as expensive, respectively. Though book value comparisons are closer, key management areas including return on assets and return on equity, along with profit and operating margins, go to Cisco hands-down.
Regardless if Cisco misses, meets or exceeds analyst expectations, you should buy, hold, and enjoy.
