Cisco Systems (NASDAQ:CSCO), typically just referred to as Cisco, is a legend in the technology sector. Cisco was like the Nvidia (NASDAQ:NVDA) of the dot-com bubble many years ago. Nowadays, people don’t talk about Cisco as much, and today’s traders are disappointed with the company. However, I am bullish on CSCO stock, and I see a good value-and-yield combo for patient investors.
Cisco specializes in manufacturing networking equipment, but like many other tech firms, Cisco is trying to reinvent itself as an AI company. Yet, Cisco seems to be having trouble convincing investors that it will be a worthy AI hardware contender, as this is a crowded field now.
Don’t rush to a judgment, though, as Cisco can prevail in the long run and provide excellent value to shareholders in 2024. With CSCO stock down a couple of percentage points today, that’s only an opportunity to pick up a few shares at a favorable price, in my opinion.
Cisco Stock Falls Despite Earnings Beat
Cisco just released its earnings results for the second quarter of Fiscal Year 2024. The company has an amazing track record of quarterly EPS beats, and Cisco just added to that track record with another solid beat. Yet, the market reacted by selling Cisco stock today.
Let’s break down the numbers and see what’s going on. For Q2 FY2024, Cisco generated revenue of $12.8 billion, down 6% year-over-year. That’s not a great result, but it was a little bit better than the consensus estimate of $12.7 billion.
Turning to the bottom-line results, Cisco reported adjusted earnings of $0.87 cents per share, thereby beating Wall Street’s consensus estimate of $0.84 per share. Again, it’s not a huge beat, but Cisco’s results still came in better than expected.
How does this affect Cisco’s valuation? If we add up the company’s past four EPS totals, we would get $4.12. With CSCO’s stock price around $49, this implies a trailing 12-month P/E ratio of 11.89x. Meanwhile, the sector median trailing P/E ratio is 22.55x. In other words, value-focused investors should definitely have Cisco on their watch lists.
For the passive-income investors out there, I should mention that Cisco expects to pay a quarterly dividend of $0.40 per share. This implies a forward annual dividend yield of 3.27%, comparing favorably with the technology sector average dividend yield of 1.025%.
Cisco’s Layoffs and Guidance Spook Investors
We still haven’t solved the mystery of why CSCO stock declined today, though. There are two likely factors involved, but neither of them should scare any level-headed investors.
First, Cisco plans to cut approximately 5% of the company’s workforce. By now, investors should be accustomed to technology companies reducing their staff. It’s something that many large-cap tech firms have done in the past couple of years, and besides, Cisco’s 5% workforce reduction isn’t massive.
Second, the market didn’t like Cisco’s forward guidance. For the current quarter, Cisco guided for revenue of $12.1 billion to $12.3 billion, while Wall Street’s consensus consensus estimate was $13.1 billion. Furthermore, the company called for current-quarter adjusted earnings of $0.84 to $0.86 cents per share, which falls below the analysts’ consensus call for $0.92 per share.
You’ll have to decide for yourself whether Cisco’s financial outlook is a deal breaker. At least now, the market should have more realistic expectations than what Wall Street had projected for Cisco. Thus, there could be a positive surprise in store, so just be patient.
As we’ll discuss in a moment, analysts aren’t overwhelmingly bullish on CSCO stock. They don’t hate the company, but they’re also not treating Cisco like they treat Nvidia. That’s perfectly fine, as value-conscious investors don’t need to focus their attention on today’s market darlings.
Is CSCO Stock a Buy, According to Analysts?
On TipRanks, CSCO comes in as a Hold based on three Buys and 14 Hold ratings assigned by analysts in the past three months. The average Cisco Systems stock price target is $52.50, implying 6.7% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell CSCO stock, the most accurate analyst covering the stock (on a one-year timeframe) is Ittai Kidron of Oppenheimer, with an average return of 16.42% per rating and a 75% success rate. Click on the image below to learn more.
Conclusion: Should You Consider CSCO Stock?
Analysts and investors aren’t as enamored with Cisco Systems as they are with Nvidia. However, if you’re seeking good value and generous dividends, then you don’t have to jump on bandwagons and chase the high flyers.
So, I encourage you to look into Cisco, as the company is a tech legend with a stellar track record of EPS beats. After conducting your due diligence, I’m sure you’ll agree that CSCO stock is worth considering for a long position in 2024.
