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Why Cisco Systems Stock Climbed 19.8% in November

By Keith Noonan - Dec 7, 2020 at 2:21PM

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The networking giant might finally be emerging from a rough patch.

What happened

Shares of Cisco Systems ( CSCO -1.82% ) rose 19.8% in November, according to data from S&P Global Market Intelligence. The stock benefited from the broader market's momentum and climbed after the network technologies company posted better-than-expected first quarter results.

^SPX Chart

^SPX data by YCharts

Cisco published first-quarter results on Nov. 12, posting sales and earnings for the period that beat the market's expectations. The company recorded non-GAAP (adjusted) earnings per share of $0.76 on revenue of $11.93 billion, while the average analyst target had called for per-share earnings of $0.70 on sales of $11.85 billion. 

A room full of servers.

Image source: Getty Images.

So what

Cisco's sales fell 9% year over year in the third quarter, largely due to the company's ongoing pivot to a more software-centric model and enterprises cutting back on spending amid coronavirus-related uncertainty. It was the fourth consecutive quarter in which the tech company posted a year-over-year revenue decline.

Adjusted earnings for the period fell 10% year over year. However, management said that it's seeing signs of recovery at the business and delivered better-than-expected guidance -- paving the way for last month's double-digit stock gains. 

Now what

Cisco stock has continued to move higher in December. The company's share price is up 1.8% in the month so far as of this writing. 

^SPX Chart

^SPX data by YCharts

Cisco is guiding for second-quarter sales to come in between flat and down 2% compared to the prior-year period. The company expects to post adjusted earnings per share between $0.74 and $0.76, down from per-share earnings of $0.77 in last year's quarter. 

In addition to this year's tough operating backdrop, Cisco is facing pressure from competitors, including Arista Networks, and a greater number of previously hardware-dependent networking functions being replicated through software applications. Despite these challenges, Cisco still has a great balance sheet to facilitate its push into next-generation networking technologies, and the stock stands out as a potential worthwhile candidate for investors seeking dividend-paying tech stocks. 

Cisco stock trades at roughly 14 times this year's expected earnings and has a 3.2% dividend yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$57.02 (-1.82%) $-1.06
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$125.48 (-0.66%) $0.83

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