Oracle (ORCL -0.02%) and Cisco Systems (CSCO 1.04%) are both mature tech stalwarts that are owned for stability and income instead of aggressive growth. However, those qualities also make them attractive safe haven stocks as rising interest rates and other macro headwinds crush higher-growth tech stocks.
Should investors buy either of these blue chip tech stocks today? Let's take a fresh look at their business models, valuations, and dividends to decide.
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The differences between Oracle and Cisco
Oracle and Cisco operate in different markets, but they're both aging companies that have been expanding beyond their legacy businesses.
Oracle is the world's top database management software company. Over the past decade, it's transformed its on-premise software into cloud-based services, which are stickier and easier to scale. It also expanded that ecosystem with more enterprise resource planning (ERP) tools.
Cisco is the world's largest producer of networking routers and switches. To grow beyond those heavily commoditized markets, it has been launching new wireless devices and expanding its software portfolio with more cybersecurity services and network monitoring software.
Which company is growing faster?
Oracle's revenue growth flatlined in fiscal 2019 and 2020 (which ended in May of the calendar year) as the expansion of its cloud services failed to offset the sluggish growth of its legacy on-premise services. However, the market's demand for cloud services subsequently soared throughout the pandemic, and Oracle's revenue grew 4% in fiscal 2021 and rose 5% in fiscal 2022.
Oracle now expects its cloud revenue to grow 30% organically in fiscal 2023, compared to its 22% growth last year, and analysts expect its total revenue (including its recent purchase of Cerner) to grow 17% with 67% earnings growth. After lapping that big acquisition, analysts expect Oracle's revenue and earnings to grow 6% and 21%, respectively, in fiscal 2024.
Cisco's revenue rose 7% in fiscal 2019, which ended in July of the calendar year as more enterprise customers upgraded their networking hardware. But in fiscal 2020, its revenue declined 5% as those upgrades cooled off and the trade war derailed its sales in China. In fiscal 2021, its revenue grew a mere 1% as its recovery was hampered by supply chain issues.
In fiscal 2022, Cisco's revenue rose 3% as its hardware business worked through its supply chain constraints and its software businesses grew. Cisco is still bracing for additional supply chain headwinds throughout fiscal 2023, but it expects its revenue and earnings to grow 4%-6% for the full year as that pressure gradually eases. Analysts expect its revenue and earnings to grow another 4% and 7%, respectively, in fiscal 2024.
What about the buybacks and dividends?
Over the past 10 years, Oracle and Cisco reduced their outstanding shares by about 45% and 22%, respectively. Both companies will likely maintain those buybacks for the foreseeable future.
Both companies also pay decent dividends. Oracle currently pays a forward yield of 1.6%, but Cisco pays a much higher forward yield of 3.1%. Oracle doesn't consistently raise its dividend every year, while Cisco has maintained annual hikes ever since its first dividend payment in 2011.
Which stock is a better value?
Oracle trades at 20 times forward earnings, while Cisco has a lower forward price-to-earnings ratio of 16. Both stocks are reasonably valued, but I believe Oracle is a slightly better buy now because its core business is less exposed to supply chain disruptions, its cloud growth is accelerating, and its bigger buybacks will consistently boost its long-term earnings growth. Cisco is still a good value play, but I believe its valuations will remain depressed until it fully overcomes its supply chain constraints.
