Cisco in 2013: A Deep Value Play

Should value investors be taking a closer look at Cisco?

Eric Bleeker
Eric Bleeker
Mar 9, 2013 at 5:30PM
Technology and Telecom

In the following video, senior technology analyst Eric Bleeker looks at Cisco's (NASDAQ:CSCO) valuation. As Eric notes, a key reason investors look at Cisco is that it's cheap, trading at roughly 12 times earnings. 

Yet the entire technology space is rife with companies in deep-value territory. Dell was bought out for around 10 times earnings, while Hewlett-Packard (NYSE:HPQ) has recently traded below four times its trailing free cash flow -- a stunningly cheap multiple. 

Looking out even further, we can see Intel and Apple in the broader technology sphere trading at around 10 times earnings. That is to say, when looking at valuation, a company must always be compared against its industry peers, and Cisco's peers are cheap as well. 

Yet IBM (NYSE:IBM) has recently fetched a higher multiple than other big tech plays. Eric believes that the breadth of IBM's portfolio gives investors a feeling of more certainty in a tech landscape that looks quite uncertain in the next five years. 

Looking at Cisco, Eric notes that if the company is able to continue growing its services business at rates beyond the company average, it could give Cisco a similar storyline of added safety though multiple revenue streams and finally nudge its multiple forward. To see Eric's full thoughts, watch the video.