Cisco Systems (CSCO, Financial) is witnessing a slowdown in networking spending from phone carriers that has led to a soft guidance for the second quarter of 2015. Cisco, for the second quarter, expects its revenue to grow in the range of 4% to 7%, while analysts expect its revenue to grow about 8% for the quarter. Its earnings are forecasted to range between $0.50 per share and $0.52 per share for the quarter. The analysts are estimating earnings of $0.53 per share for the quarter. Let us look at the growth drivers that could possibly enhance its performance going forward.
Focus on growth drivers
Looking ahead, Cisco is said to be benefiting from its transformation plan. Its transformation plan focuses on enhancing innovation, speed, agility, and effectiveness in its business. Also, it has a solid business model that concentrates on providing architectures and integrated solutions coupled with ground-breaking software and services. Moreover, the company is continuously engaged expanding its product portfolio and maximize its opportunity to provide solutions to its customers across the world. It is also engaged executing potential deals that should enhance its growth in the long-run.
Cisco has effectively assembled its networking solutions with compute and storage that has created number one position for the company in data centre. Its NCS platform integrated with the new Nexus 9000 in data centre and cloud now looks great and should appeal to service provider going forward. Additionally, Cisco remains quite upbeat with its Application centric infrastructure or ACI implementation. The company is now converting its networks with applications, securities and scale that should undoubtedly drive its networking growth in the long-run. However this transition does raise few concerns as it focuses on evolutionary changes in networking with the new SDN switching platform.
This should probably take some times for the service providers to get adjusted with this new SDN switching platform. Nevertheless, its overall switching market has moved to positive territories after declining for consecutive three quarters that should excite its shareholders. It has experienced approximately 60% increases in the Nexus 9000 and ACI customers. Moreover, Cisco continues to see a double digit order growth from its Nexus 3K, 7K, 9K and ACI combined. In fact, the company has acquired new 600 customers for its Nexus 3000 during the last reported quarter. This also includes various major Web 2.0 providers. This should drive its growth in the upcoming quarters.
Emerging market focus
Additionally, Cisco is strongly positioned in the emerging markets that should possibly lead to an upturn for the company going forward. Cisco has made tremendous progress with its product transition and Service providers in the emerging markets for switching and routers. Also, Cisco is continuously launching new products and services in the emerging markets. Its new products such as NCS 6000 and CRS-X are gaining tremendous traction in the market and winning plenty of customers for the company.
Cisco has observed strong double digit growth in its high-end routing platforms. Besides, the company is ramping up the production of these products that should assist the company acquiring many new customers going forward. It also remains on track to effectively re-align its products and services with that of service providers that should inevitably drive its growth in the upcoming quarters.
Conclusion
Cisco looks great with its transformation plan. Its networking business is picking up the pace with its next-generation routers and switching platform. Also, it sees potential growth for its new nexus 9000 in data centre and cloud. The analysts have forecasted CAGR of 7.64% for the next five years that indicate sound growth prospects for the stock in the long-run. The stock is trading at the trailing P/E of 17.23 and forward P/E of 11.46 that signifies reasonable valuation for the stock that has a lot of rooms to grow in the future. Also, its PEG ratio of 1.57 continues to support its growth in the long-run. It has profit and operating profit of 16.25% and 21.96% respectively for the trailing twelve months. Its balance sheet carries total cash of $52.16 billion, which is quite enough to cover its entire debt of $20.97 billion. It has operating cash flow of $12.73 billion and leverage cash flow of $9.24 billion.
