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Why Cisco Systems' Shares Rose 13% Last Month

By Anders Bylund - Updated Sep 10, 2018 at 7:11PM

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The networking giant posted rock-solid fourth-quarter results, highlighting the growth power it found in a subscription sales model for big-ticket hardware packages.

What happened

Shares of Cisco Systems (CSCO -0.09%) gained 13% in August, according to data from S&P Global Market Intelligence. The maker of business-class networking equipment published a strong fourth-quarter earnings report mid-month, giving market makers all the fuel they needed to kindle a fire under Cisco's stock.

So what

Cisco saw fourth-quarter revenue rise 6% year over year to $12.8 billion, driving adjusted earnings 9% higher at $0.70 per share. The analyst consensus had been pointing to earnings near $0.69 per share on revenue in the neighborhood of $12.77 billion. The surprises weren't large but significant enough to trigger an avalanche of positive analyst notes over the next few days. And that's all she wrote. Cisco never backed down from that elevated pricing platform.

A handful of colorful Ethernet cables plugged into an enterprise-grade network switch.

Image source: Getty Images.

Now what

The networking veteran sported solid fourth-quarter growth in every business segment that matters, led by the high-end Catalyst 9000 series of network switches, which nearly doubled its subscriber numbers during this single quarter. That's right, Cisco now sells networking equipment tied to long-term subscription contracts, much like how the software industry at large moved on to subscription platforms in recent years.

Cisco's investors aren't complaining at all. The stock has now surged 50% higher in 52 weeks, and it could have room for continued gains since the share price stands at a modest 14.5 times forward earnings. Fellow Fool Leo Sun sees Cisco as a "worthy buy" after that mid-August surge, and I must agree.

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