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About Cisco

Some say food is a great connector amongst the masses, or perhaps mutually endured struggle regarding a university class (felt, believe me) or practically any other prolonged burden in the spectrum of life.

I largely agree and disagree.

Primarily, I would venture to say that Cisco Systems, a company that’s products quite literally surround me at nearly all times while I am on my university’s campus, is a great, and perhaps technically better connector on this planet, as Cisco is pretty much the biggest and the best when it comes to connecting people through these little things that we often don’t see but here about frequently.

Networks.

For instance, there are these somewhat camouflage, square devices that hang on top of and at times on the side of walls within lecture halls I am often inside of, engraved ever so lightly with the words “Cisco Systems.”

This is evidently one of Cisco’s primary products, as upon further research this is a sort of network device that, at the end of the day, ensures that people within or around the space that device is planted can access the (internet) networks they need to access and perhaps collaborate with one another in the digital realm in a safe and efficient manner.

As it has undoubtedly become more important than ever for devices to operate at quicker and quicker speeds, Cisco is a major beneficiary of this not-so-short-term trend, as it provides products that are intent on not only connecting individuals, businesses and other organizations and entities, but it is also intent on maintaining high speeds throughout this connection process.

They really are a major reason why the internet isn’t slow, that is, when it isn’t.

This lends itself to a traditional software as a service (SaaS) business model in the sense that it offers its products, services and overall networking capabilities through, which really more precisely could be considered a network as a service (NaaS) business model, among many other non-core yet important streams of revenue, such as selling hardware.

Additionally, the company plays a very important role in protecting users of its networks from the bad actors of the internet, such as e-thugs (at least, that’s what I like calling them), which, with all of this talk of artificial intelligence and heightened demand for cybersecurity across the board, Cisco is evidently leaning more into this, as in addition to its current capabilities and product offerings on these fronts, at the time of this publication the company is in the process of acquiring a massive cybersecurity technology company by the name of Splunk for a whopping sum of $28 billion.  

So yeah, Cisco is seemingly staying on trend with respect to both the hardware and software spectrums in both the sense of where the industry currently is and where it is heading, both from a macro perspective but also through a customer-centric lens as well.

With respect to competition, this San Jose, California-based company is certainly a top dog in the vast networking and connection categories, however, it does maintain its fair share of competition, including the likes of (but not limited to) China-operated Huawei Technologies, network player, who would’ve guessed it, Juniper Networks, Hewlett Packard Enterprise, among a handful of other major competitors looking to eat more and more of Cisco’s lunch day after day.

While still on the topic of categories and names, let’s briefly outline some of Cisco’s clients, besides my university, of course.

Cisco’s major clients include the likes of (and are most definitely not limited to) Comcast, Bank of America, Walmart, Amazon Web Services (AWS), United Parcel Service (UPS), CVS Health, Procter & Gamble, The Home Depot, Mercedes-Benz, BMW, Stanford University, University of Oxford, Harvard University, Chevron, Siemens AG, Baker Hughes, among many, many others.

This is a great thing in the sense that these clients are going to be able to continue paying for Cisco Systems’ services and platforms, not merely wanting to keep them on board, but really, out of necessity needing to keep Cisco on as a primary vendor, as the company in question has more than likely integrated itself into their customer’s systems so well that it would be immensely challenging to disentangle itself from its clients.

Of course, basically no company is completely recession immune, but Cisco has set itself up quite well over the years and decades it has been existence to fend off many threats thereof, which is hardly a negative.

In the interest of not drowning our readers in more information than we’ve already divulged regarding the company of the day, we hope we have painted a tidy, to the point picture of what Cisco Systems does and how it makes money, among other things, and now, let’s get to the main attraction on today’s menu and get a better glimpse of how this company has been performing financially, in hopes of ultimately determining whether or not this company’s stock (NASDAQ: CSCO) is worth considering buying and holding indefinitely.

Cisco’s stock financials

According to the company’s present market capitalization, Cisco Systems is a big, big company, flaunting a market capitalization of $212.11 billion along with a share price of $52.20, not to mention the company’s present price-to-earnings (P/E) ratio of 15.73, as well as the fact that Cisco currently offers its shareholders an annual dividend of $1.56.

So far, so good, as according to the company’s prevailing market capitalization, this is indeed a ginormous company, being worth nearly a quarter of a trillion dollars, not to mention the company’s lower ended price-to-earnings ratio, standing below the commonly held fair value benchmark of 20, implying (only to a certain degree, as nothing is guaranteed) that Cisco’s shares (NASDAQ: CSCO) have some more room to fill before being fully priced in, particularly on the basis of fair, full, intrinsic value, or the sum of this firm’s parts and what they are worth paying for today.

Of course, it is also an added bonus that the company offers its shareholders an annual dividend, which has been stable and growing for quite some time now, as this is certainly not always a common case among other technology companies.

It’s nice that the company is rewarding its shareholders in this respect, however, we hope to determine and/or verify that this company can afford to continue paying out such a dividend, by largely referencing its recent cash flows and also the overall breakdown and condition of its balance sheet.

Speaking of its balance sheet, Cisco’s seasoned executive team and board of directors are in charge of stewarding, managing and reasonably preserving and deploying just about $101.8 billion in terms of total assets as well as $57.5 billion in terms of total liabilities, which is a very, very excellent balance sheet from where we stand, strongly indicating that this company has a lot of financial resources at its disposal, which grabs my attention as this is a company that has scaled so well throughout history that a substantial portion of its future growth is undoubtedly going to stem from acquisitions, and with a balance sheet framework such as this one, Cisco can easily afford to pursue meaningful acquisitions while, of course, further investing in and sharpening its current product lines and businesses (hardware and software) internally, and raking in more clients through these means of becoming more competitive within the networking and greater overall technology ecosystem.

Suffice it to say this balance sheet puts Cisco Systems in a very good spot.

Regarding the company’s income statement, Cisco’s annual revenues (measured since 2019) have been quite boring between and during 2019 and 2023, for instance, as its revenues ranged between a relative low of $49.3 billion and a high of $51.9 billion between 2019 and 2022, which isn’t all that much growth, especially for a company operating within the technology sector, however, the company’s revenues have popped between 2022 and 2023, jumping from $51.5 billion in 2022 to its latest reported revenue figure of just a hair under $57 billion, rising nearly $6 billion within this timeframe, and we have our suspicions that, sure, some of this is artificial intelligence (AI) driven, but we more so suspect that the company grew its revenues through employing (mild and maybe not-so-mild) price hikes here and there, which isn’t exactly a sustainable long-term business strategy, at least for most other businesses, however, Cisco Systems does undoubtedly maintain a good amount of pricing power and during the last handful of years, it made perfect sense for the company to flex it.

However, this is a really, really large company and thus it is only going to grow so much given the already massive base of which it is operating off of, so we will definitely offer some necessary leniency in this respect, all that to say that we wouldn’t depend on this as a means of generating more revenue growth in the years to come.

We came for the organic, transactional and customer-rooted revenue growth.

I guess you could say that we are net neutral on the company’s income statement, specifically as it pertains to its recent annualized revenue figures.

There is really nothing to write home about, however, we do think there are a plethora of opportunities for the company to grow its revenues in the years that come through the integration of artificial intelligence within its current and future products and, of course, through further accretive acquisitions and the persual thereof. 

On the front of the company’s cash flow statement, both Cisco Systems’ net income and total cash from operations (again, also measured between and during 2019 and 2023) have been very stable, which is great to see especially given all of the chaos and turmoil enveloping the economy in recent years, starting with COVID-19 and, well, you probably know the rest of the story, at least up to this point, which just so happens to be an inherent benefit of being such a large, relied upon enterprise-focused technology company.

More specifically, the company’s total cash from operations have ranged from a relative bottom of $13.2 billion (2022) and a high note of almost $19.9 billion, as reported in 2023, largely assuring us that this company has great margins while also widely confirming that this company can continue paying out such a healthy annual dividend.

Cisco’s stock fundamentals

While still on the subject of the company’s margins, it can be found on TD Ameritrade’s platform that Cisco maintains a trailing twelve month (TTM) net profit margin of 23.40% to the industry’s close but no cigar relative average of 21.54%, meaning that for each dollar that Cisco Systems generates in revenues, it gets to keep twenty three cents as profit, which may not seem like a lot, however, in this category and this context of how much revenue Cisco produces in a single fiscal quarter alone, trust me when I say it is a lot, and it is also a great indicator that while the competition’s respective average is close, it still lags behind the TTM net profit margin of the company in question, directly telling us that Cisco is simply better at carving out a (net) profit than its competition, on average.

As it relates to the company’s TTM returns on assets and investment(s), Cisco and the industry (on average) are for all intents and purposes in lockstep, if anything, with Cisco’s metrics falling ever so slightly by the waist side to the industry’s listed averages, with, for example, the company’s TTM return on investment listed as 19.41% with the industry’s respective average pegged at 20.66%, with the company’s and the industry’s TTM return on assets posing an eerily similar stature.

While we would love to see Cisco be a bit more competitive on these TTM returns, the company admittedly has a lot of different assets and investments in place, and thus it naturally takes a bit more time to extract returns from such a wide and deep portfolio, and with the averages being so close to one another, we aren’t so much as giving the company a blatant pass, but we surely aren’t garnering any critical doubts or negative thoughts regarding the company from these returns.

Should you buy Cisco stock?

Cisco is just one of those companies that is going to stand the test of time and the world as we know it is probably going to end before it goes out of business.

It is a very important company.

Nevertheless, being that the primary goal of this stock analysis article is to determine whether or not this company’s stock (NASDAQ: CSCO) is worth buying shares in now, the numbers must be the loudest voice we hear from, and the numbers aren’t that bad at all.

Specifically, the company’s stock is apparently trading at a mild discount (according to its aforementioned price-to-earnings, or P/E ratio), its balance sheet is in pristine condition, its revenues have been unexciting but stable, for the most part, its cash flows have been abundant, its comparable TTM net profit margin is in a good place and its return metrics are competitive, but not quite as solid as those of the industry’s averages.

It has a boatload of recession resistant enterprise clients and boasts a host of revenue streams all generally centered around networking, and with the company dipping its toes into cybersecurity, a rapidly growing industry, especially with artificial intelligence being on the scene now more than ever, we deem there to be a rather extensive list of reasons that this company can grow in the years and decades to come, even if it is attempting to grow off of such a wide and established operating base.

Hence, the “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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