Cisco Systems, Inc. Wow's The Analysts At Investor Day

The Analysts Liked What They Heard From Cisco

Cisco Systems, Inc. NASDAQ: CSCO held its first investor day in 4 years and the analyst walked away with good feelings. The purpose of the event was to recap the company's progress since the last investor day and to highlight its plans for the future. The company is deep in a transformation from a software company to a software-as-a-service company and working actively toward that end. In the time since the transformation began, software subscription revenue has grown at a 23% cagr to account for two-thirds of the net software revenue and that trend is intact. 

The data from Marketbeat.com shows the analyst community is already abuzz with positive chatter in the wake of the event. A minimum of seven sell-side analysts have come out to at least reiterate their hold rating but the vast majority were more bullish. Out of the seven commentaries, four of them included a price Target increase, one existing buy rating set a price target well above the consensus, and one analyst issued a double upgrade from neutral to outperform and also with a price target above the consensus rating. The current consensus price target for Cisco Systems is near $58.50 compared to the high price target of $74. It is worth noting the consensus price has increased 15% over the last 30 days and will likely continue to rise in the near term.

The Analysts Are Underestimating Cisco's Q1 Revenue

The analyst consensus for Q1 revenue is $12.99 billion which is good for a low single-digit decline sequentially and versus the 2019 Period.  On a year-over-year basis, growth should top 8.75% and we view this as a low estimate. It is more likely that Cisco's revenue will at least remain steady, if not grow on a sequential basis, which would put year-over-year growth above 10% and 2-year growth in positive territory. Cisco Systems guided well above the consensus, at the high end of its range, and the company tends to beat the consensus estimate 100% of the time so there's that to consider as well.

This is a company-highlighted detail from the last earnings report … “Double-digit order growth across all customer markets and geographies, including product order growth of 31% - strongest year-over-year growth in over a decade”.

Cisco Systems Is A Fortress For Your Dividend Growth Portfolio

Cisco Systems is a capital-returning machine and one that we find attractive. Not only does the company have a fortress balance sheet with high levels of cash, low levels of debt, and ample free cash flow but it also is actively engaged in a repurchase program and pays a very healthy dividend. The company had $7.90  billion left on its repurchase program at the end of the last quarter which is worth about 3.25% of the market cap. As for the dividend, the stock yields 2.6% with shares near $57.50, the payout ratio is below 44%, and there's a 10-year history of dividend increases at a 10% CAGR.

The Technical Outlook: Cisco Systems Confirms Trend

Shares of Cisco Systems had a volatile day of trading the day of the Investor Day event but the balance of action was bullish. The candle formed is a large doji confirming support at the short-term moving average as well as the recent uptrend in prices.  Price action the day after the event is also bullish and up nearly 2% from the previous day's close. In our view, investors should expect to see Cisco testing resistance at the $60 level fairly soon and then breaking out to new highs. Once the stock breaks out to new highs we see it advancing to the $66 to $70 levels before the end of the year