Cisco (CSCO: $55), released its fourth quarter results last week, reporting $15.2 billion in revenues, up 16% YoY, compared to $13.1 billion a year earlier. The company posted a profit of $4.7 billion, or $1.14 per share, against $3.4 billion, or $0.83, beating consensus figures at the top and bottom lines for the umpteenth time, sending the stock higher following the results.
The company’s full-year figures were just as phenomenal with revenues at $57 billion, up 11% YoY, compared to $52 billion a year ago, with profits at $16 billion, or $3.89 per share, against $14 billion, or $3.36. The results were driven by strong momentum and substantial tailwinds arising from trends such as AI, cloud computing, and cybersecurity, all of which represent a dominant position for Cisco. Plus, the fact that Cisco is in a great business with no particular end in sight to its growth potential.
Cisco designs, manufactures and sells Internet Protocol (IP)-based networking and other products related to the communications and information technology (IT) industry. They are a leading provider of networking solutions for businesses of all sizes. Their products are used to connect people, devices, and applications together. Cisco has operations in over 160 countries with over 75,000 employees. Cisco is successful because they offer a wide range of high-quality products that meet the needs of businesses of all sizes. They also have a strong global presence and a commitment to innovation. Here are some of the businesses that Cisco dominates:
- Routers and Switches: Cisco is renowned for its routers and switches, which form the backbone of networking infrastructure. These devices enable data traffic management and efficient communication between devices within networks.
- Security Solutions: They offer a comprehensive suite of cybersecurity solutions, including firewalls, intrusion prevention systems, and secure access solutions, safeguarding networks from cyber threats and unauthorized access.
- Collaboration Tools: This includes video conferencing systems, collaboration software, and communication platforms like Webex, enabling remote teamwork, virtual meetings, and content sharing.
- Wireless and Mobility: The company provides wireless networking solutions, ensuring seamless connectivity for devices in both business and public environments.
- Data Center Infrastructure: Their data center offerings encompass servers, storage solutions, and networking equipment tailored for large-scale data processing, storage, and management.
- Cloud Services: Their cloud offerings include networking solutions for cloud data centers, ensuring efficient connectivity and management of cloud resources of this monstrous fast-growing business.
Cisco is in the process of transforming its business model, with a focus on growing the share of recurring revenues in its overall sales mix. The company expects modest year-over-year (YoY) growth rates in 2024, yet they remain proactive in developing cutting-edge innovations. In recent months they have unveiled a slew of new products, initiatives, and offerings. This includes the launch of its new scalable infrastructure to help customers process AI workloads more seamlessly, followed by XDR*, multi-cloud defense, and cloud-secure access which are seeing strong traction across the board, even onboarding marquee customers such as Goldman Sachs and Apple. Cisco has since received orders worth over $500 million for its new ethernet fabric for AI at scale. (From the recent Tech press: The Cisco CEO surprised analysts by mentioning it had already sold $500 million of AI gear. Cisco is wooing cloud companies away from offerings by Nvidia. One analyst says it's a promising start on a potentially huge new market.)
*XDR - Extended detection and response or XDR is a new approach to threat detection and response that protects against cyberattacks, unauthorized access, and misuse.
We believe Cisco to be a strong value at this level, trading at a little under 4 times sales, and 13 times earnings, which is enticing, and this is after a 20% rally starting in May. Cisco continues to reward shareholders generously, with $2.8 billion paid out in the form of dividends and buybacks during the fourth quarter, made possible by its $26 billion in cash, just $8.4 billion in debt, and $20 billion in cash flow. Our Target is $60 and our Sell Price of $41 is too low, so we are raising it today to $48.
As we said when we issued our Research Report on June 1st, “We can see the day when Cisco hits triple digits.”