Akash Patel and Dean Troiano Technology, Communications ap49@iu.edu & dtroiano@iu.edu
Cisco Systems, Inc. (NYSE: CSCO)
Performance (chart)
Company Information Price: $54.71 52 wk range: $48.32 - $64.29 IPO Date: Feb 16, 1990 Mkt Cap: 229.9 B Shrs Ostd: 4.15 B
Revenue Breakdown By Segments
03/11/22
Undervalued
Company Background. Cisco Systems is a technology and communications company focused on networking hardware. They are known for being a leader in fast broadband and network speeds. With the spread of 5g networks, Cisco has been actively ahead of the curve releasing newer and better 5g hardware before its competitors. Its brand image, specifically within the corporate world, makes it a highly valued company. Thesis 1: Cisco is releasing products, like the Silicon 1 chip, that are specifically targeted towards making hybrid work as efficient as possible. Many companies are making the switch now as evaluations on hybrid work are being made. During early pandemic lockdown stages, many employees and employers believed that remote work was a temporary fix. However, with lowered business cost, as well as an increase in employee satisfaction, many companies are making the switch. One downside to this switch is the lack of commercial technology available at homes. Cisco is closing the gap between technology in the workplace and technology available at home. Thesis 2: Cisco is releasing a new product that allows customers to use Cisco’s own private 5G networking, allowing for faster speeds due to less traffic. This will be especially attractive to businesses that mostly conduct online, where every second matters. Broadband speeds are one of the most attractive features for many modern businesses to decide upon when hiring a network company. Through this feature, Cisco is able to differentiate itself and attract more customer traffic. Thesis 3: Cisco’s new Wifi 6E is considered to be an industry leader in providing fast wifi speeds and is the new go to baseline supportibilty feature for businesses that are looking to buy a new router. Hardware has one of the highest workplace turnover rates when it comes to technology. Therefore, if Cisco is able to establish itself as a reliable hardware brand, it will be able to generate steady and consistent revenue from employers upgrading hardware.
Revenue Breakdown By Geography
Dividends Paid Over Time
Financial Investment Review
Valuation: The relevant industry average for the overall operations of Cisco is 29.2x, however, looking at only relevant comparable companies in both size and operation, the average is even higher. Cisco trades at 19.2x earnings, lower than the industry by 10 times. Juniper Networks (NYSE: JNPR) trades at a 42.5x P/E ratio and, based on the relevant catalysts, has a lower potential for expansion into new markets or the growth of market share within the Information Technology sector. Pricing Cisco based on this discrepancy alone, a year-maximum target price can be set at $73.14, presenting a potential 33.71% upside. The valuation time period lessens the simple comparables evaluation of the share price, meaning that within a year, the market will likely only correct 6080% of its current intrinsic value inefficiencies. Based on this fundamental comparable analysis, a long position lasting between 6 months and a year is the recommended course of action. Risks: Cisco’s main risk is its competitors. The information technology industry is largely predicated on product differentiation and market presence. NetGear, Arista Networks, and Dell Technologies are among the most notable competitors of Cisco. Additionally, those companies are very comparable to Cisco in terms of future prospects and customer retention percentages, meaning that they are the key companies to look at when weighing risk. However, based on the catalysts that will drive the upward move in the stock price, Cisco’s current standing in the industry will act as a positional tool in presenting its new projects to the market. Another two factors present in the risk weight of Cisco are the current threat of Federal rate hikes and the global conflict between Russia and Ukraine. For the first threat, the interest rate hikes will likely have a more significant effect on companies that are classified more as growth than value stocks, increasing their Weighted Average Cost of Capital and devaluing their future cash flows in present terms. Once the market is made aware of more specific parts of the rate hikes, lower beta, large capitalization stocks like Cisco will likely have the most protection from the negative impacts of the policy.