Cisco Stock Looks Like A Buy At $52

Cisco Systems Inc (NASDAQ: CSCO) stock has had a reasonably strong 2023, rising by about 10% year-to-date, although it has lagged the broader Nasdaq-100, which remains up by about 20% over the same period. Cisco’s Q2 FY’23 results, published in February, were stronger than anticipated driven by strong growth in the company’s core networking business and also due to easing supply chain constraints which are helping the company to clear its backlog. Moreover, the company has also upped its guidance for the full year, forecasting sales growth of between 9% and 10.5% for the year, up from a previous guidance range of 4% to 6%. New orders have also been strong, with the company indicating that it saw double-digit sequential order growth from the commercial and enterprise space, with demand from the public sector also remaining strong. Moreover, the company is likely to be a key beneficiary of rising spending on cloud computing.

So, is Cisco stock a buy at the current market price of about $52 per share? We think it is. Despite the recent gains, the stock trades at under 14x consensus earnings for FY’23. We think this is a reasonable valuation, considering that sales are projected to grow by near double digits in the near term. Moreover, we think that the company will perform better that its tech peers in the event of an economic downturn given the secular spending trends on digitization and networking. Moreover, the company has also been growing its cash flows and dividends fairly consistently with the current dividend yield standing at a little over 3%. We value CSCO stock at about $59 per share, which is about 13% ahead of the current market price. See our analysis of Cisco Valuation for a closer look at what’s driving our price estimate for the stock. Also, check out our analysis of Cisco Revenue for more details on the company’s key revenue streams.

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[1] Month-to-date and year-to-date as of 4/4/2023
[2] Cumulative total returns since the end of 2016

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