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Is Cisco The Best Turnaround Company You Are Looking For?

June 29, 2014 | About:
Suravi Thacker

Suravi Thacker

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The networking company Cisco Systems (CSCO) is an interesting company to watch. After witnessing troublesome quarters for some time, the company finally made its way to a possible turnaround. Its efforts seem to be bearing fruit as the company reported a better than expected quarterly numbers which won investors’ hearts. Its results beat the Street’s expectations, sending its share price higher.

A decent quarter

Although revenue dropped 5.5% to $11.50 billion over last year, it easily beat the estimate of $11.36 billion. Earnings per share declined to $0.42 per share from $0.46 per share in the prior year. However, on an adjusted basis, earnings stood at $0.51 per share, much higher than the analysts’ expectation of $0.48 per share.

But Cisco faces stiff competition from other players such as Juniper Networks (JNPR) which has been performing much better. In fact, Juniper Networks reported a 10% surge in its top line in the most recent quarter, clocking in at $1.17 billion. Also, its earnings jumped 22% to $0.22 per share, over the previous year’s quarter.

Over the last one year, Juniper has provided better returns than Cisco. Juniper’s stock price appreciated 29%, whereas Cisco’s share price jumped by 2.5% only. However, Cisco’s efforts such as acquisitions to strengthen its business have enabled it to do better. Hence, its stock price has gained 10% since the beginning of this year, whereas Juniper’s price rose 9% during the same period.

Acquisition led growth

Cisco’s growth is mainly driven by a host of acquisitions made in the year 2013. It acquired Composite Software in July 2013 and made another two acquisitions, Sourcefire and WHIPTAIL in October. Further, in December it bought a privately held company called Inseime Networks, a developer of application-centric infrastructure products in the data center. This acquisition is made to help Cisco in its new SDN strategy. These acquisitions together should help the network company expand its business and grow its revenue.

Moreover, Cisco has repurchased 90 million shares during the quarter for $2 billion. This helped the company in boosting its bottom line. Further, it has another $10.1 billion left in its share repurchase program which will again help earnings per share grow. Therefore, this company looks interesting to the investors because of share repurchase program.

Additionally, Cisco pays great dividends, which is a part of its capital return program for its shareholders. It paid a dividend of $0.19 in the last quarter and has an annual dividend yield of 3.1%. Hence, it is a great stock to own for the long term.

Final thoughts

Although Cisco Systems faces stiff competition from its peers such as Juniper Networks, it has provided some good reasons to believe in its future. Firstly, it posted a great quarter, which was beyond analysts’ expectations. Further, it is racing ahead of peers, when performance over the last few months (year-to-date) is considered. This was possible because of its acquisition strategy which has expanded and strengthened its business. Furthermore, it’s a great stock to be owned because of stock repurchases and dividends paid to the investors. Therefore, prudent investors should take note of this networking company.


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