Cisco Systems (CSCO - Free Cisco Stock Report) is a broadband networking infrastructure behemoth headquartered in San Jose, California. The company’s founding dates back to 1984 on the campus of Stanford University; Leonard Bosack, Kirk Lougheed, and Sandy Lerner, all employees of the college at the time, began working on the initial Cisco IOS. The name Cisco is derived from San Francisco and the company’s symbol is meant to be reflective of the two towers of the Golden Gate Bridge. CSCO went public in February of 1990 and the timing could not have been more ideal, as the Internet boom was still in its nascent stages. The decade of the 90s was marked by phenomenal growth and numerous acquisitions for the company.
Present day, CSCO is a leading provider of Internet Protocol-based networking and other products for transporting data, voice, and video across geographically dispersed local-area-networks, metropolitan-area networks, and wide-area networks. A quick glance at the Value Line page’s Statistical Array shows that even though the last 10 years have by no means been the company’s strongest, growth has still been formidable for this Dow-30 component. Still, Cisco’s finest days are probably ahead of it. In the Commentary section of our most recent report, analyst Kevin Downing points out that the “digitization” of countries, cities, homes, and cars is likely forthcoming. In layman’s terms, this means eventually every electronic device will link to the Internet. If so, it is estimated that $12 trillion in increased profits will be up for grabs, with CSCO leading the way.
As far as recent news regarding the company, the retirement of its long-time CEO John Chambers has ruled the headlines. We list the top executives in the Business Blurb located in the middle of the Value Line page. Talk of Mr. Chambers departure started about two years ago, so him leaving at the age of 65 is not at all a surprise. However, when it was announced that Chuck Robbins, a 17-year veteran at CSCO and the current leader of the global sales team, would be assuming the top perch, there appeared to be some concern. These fears manifested in early June when a couple of the men that were rumored to be Mr. Robbins’ competition said that they were leaving the company; President and COO Gary Moore and President of Development and Sales Rob Lloyd, who, combined, have over three decades of experience at Cisco, will both be exiting in late July. Whispers of additional departures are popping up on some tech-related sites, but have not been confirmed yet. A brain drain of this nature is never ideal, and these moves will certainly affect the company’s deep bench. For now, we are taking a wait-and-see approach to these changes, but it appears the market is digesting the exodus just fine. The shares have not reacted much to any announcements since news of the CEO switch was released.
From an investment perspective, we really like the company’s dividend payout. This amount can be found in the Quarterly Dividends box in the lower left-hand corner of our page. Too, the dividend yield is visible in our Top Label line along the top border. Technology companies are not very inclined to pay dividends, so the fact that CSCO does displays just what kind of blue chip we are dealing with here. In fact, the current yield is north of 3%, whereas the Value Line median has hovered around 2% for some time now. Tech firms are more likely to stash their cash due to the fact that downturns have swept through many sectors in the past. Cisco’s scope gives it the necessary cushion to not have to worry about such things, though. Our view calls for the payout to rise to $1.08 on an annualized basis out to 2018-2020, a handsome incline from the initial stipend of $0.12 a year that began in 2011. For a breakdown of the annual payouts also consult the aforementioned Statistical Array in the Dividends Declared Per Share line.
A good part of the reason why Cisco can spin out a dividend is its superior financial position, particularly when placed against many of its high-tech peers. The Company’s Financial Strength is noted in the bottom right hand corner of the Value Line page. CSCO receives our highest possible grade for this characteristic, or A++. One of the contributing factors to this metric is the company’s sizable treasure chest of cash. Also, the amount of cash flow generation taking place on a linked quarter basis is handsome to say the least. Cash Assets, which is the first designation listed in our Current Position box in the middle left-hand column of the page, has grown each of the last several years, and is a particularly endearing figure to those investors banking on CSCO being acquisitive in nature over the next few years. Needless to say, this company has the financial wherewithal to pull a number of levers to boost shareholder value. Purchases to boost existing offerings, buys to start an entirely new operating arm, stock buybacks, and an increase in the quarterly dividend, are all within the realm of possibilities.
For the year ahead, we think CSCO shares are fairly valued. This statement is backed up by our Timeliness ranking located in the top right-hand corner of the page. One rung below that is our Safety ranking, which shows that this equity is a good-quality selection. But, it is the box just below that labeled 2018-2020 Projections where we think CSCO’s current appeal peaks. At this time, the stock’s primary appeal is in the dividend component of its total return out to decade’s end.