Higher than expected revenues for Cisco’s network security business will have a modest upside for Cisco’s (NASDAQ:CSCO) stock, since Network Security & Other Products account for only around 10% of Cisco’s stock price.
Cisco competes with Juniper (NYSE:JNPR), Alcatel-lucent (NYSE:ALU), and Tellabs (NASDAQ:TLAB) in communications and networking equipment market. We currently have a Trefis price estimate of $25 for Cisco’s stock, about 17% above the current market price of $21.
Cisco provides network security products such as Virtual Private Networks (VPNs) and firewalls. Despite competition, Cisco has been able to retain a market share of around 40-45% (by revenues) in the network security market. Cisco’s margins in the market are estimated to be around 60% – much in line with its high margin businesses like routing and switching. In the past, Network Security has increased from $0.8 billion in 2003 to around $1.9 billion in 2009.
The average of Trefis member forecasts for Network Security indicate an increase from $2.3 billion in 2010 to $3.7 billion by 2016, compared to the baseline Trefis estimate of an increase from around $2.1 billion in 2010 to $3.1 billion by the end of the Trefis forecast period. The member estimates imply an upside of 1% to the Trefis price estimate for Cisco’s stock.
