Cisco Stock Is Climbing, And It Is Not About Covid-19 Vaccine – Time To Get In?

by Trefis Team
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Cisco’s (NASDAQ:CSCO) stock jumped more than 11% during the last 5 trading days. In comparison, the S&P 500 climbed nearly 2.3%. While most stocks benefited from vaccine announcements from Pfizer and Moderna, Cisco has its own story. And that story is that Cisco’s exposure to legacy and on-premise IT spending, which were down this year, may be of limited consequence going forward. IT spending is likely to rebound sharply in 2021, and distribution of a vaccine lends more support to this expectation. Does this make it a good time to invest? Both the fundamental analysis and the output of our AI engine suggest it is so. Let’s see how.

Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period, and suggests nearly a 49% probability of Cisco increasing another 10% over the next 3 months. Compared to this, the chances of a -10% pullback are just 9%, suggesting that Cisco is 5x more likely to move up than down for a 10% quantum over the next 3 months. Overall, we expect nearly an 8% return during this period considering how the stock has behaved in the past. Our detailed dashboard highlights the chances of Cisco’ stock rising or falling and should help you understand near-term return probabilities for different levels of movements. In addition, our dashboard Big Movers: Cisco Moved 11.4% – What Next? lays out how multiples and underlying financial trends suggest positive outlook for Cisco.

Cisco’s stock price decreased -20% this year, from $47.96 to $38.20, before moving 11.4% last week, and ending at $42.54. At the beginning of this year, Cisco’s trailing 12 month P/S ratio was 4.02. This figure decreased -18.8% to 3.26, before ending at 3.63. So the stock is certainly cheaper, but this assessment is incomplete without peer comparison. Compared to Cisco’s P/S multiple of 3.63, the figure for its peers FFIV and MSI stands at 4.26 and 3.9 respectively. This suggests that there might be room for Cisco’s valuation to grow. Makes sense, but what about the underlying financials? Does the trend support this? Let’s check.

Cisco’s revenue has increased 8.1% from $48,005 Mil in 2017 to $51,904 Mil in 2019. For the last 12 months, this figure stood at $49,301 Mil, implying a decrease of -5% over 2019 numbers. That’s not bad considering how several industries have fared. Interestingly, Cisco managed to sustain its profitability. For the last 12 months its net margins stood at 22.7% compared to 22.4% in year 2019. To add to this, we expect IT spending rebound next year to push Cisco’s sales past pre-Covid levels.

Thus, if you are interested in investing in a telecom company – Cisco is worth checking out.

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