Despite a lowered rating by MKM Partners, Cisco Systems, Inc. (NASDAQ:CSCO) has the potential to earn huge profits.
Cisco Systems, Inc. is a networking giant in technology where it designs and offer products for the IT and communication industry. Recently, Cisco stock is being watched by a number of investors due to the fact that it has the potential to provide massive profits. However, there are analysts that beg to differ. Trade-Ideas LLC recently identified Cisco as a "roof leaker" which means that Cisco is not a stock to consider this quarter.
Nevertheless, after negatively describing Cisco, Trade-Ideas LLC's analysis changed and thus defined Cisco as a "storm the castle" stock. According to their study, the stock may experience a breakout sooner rather than later which has the probability to give enormous profits for the investors. Currently, the stock moves strongly in the markets despite its unsteady grip on the positive side of things.
This particular movement is seen by the analysts as a signal that a new trend may be about to start. This impending trend can be used by the investors early in the game. As with the traditional ways of stock investment, a properly timed trade can provide huge earnings in the end.
Although Trade-Ideas LLC is optimistic about Cisco Systems, MKM Partners is not. They have recently lowered their rating for the stock from buy to neutral. Previously, their price objective for Cisco was $28.00 which they changed to $26.00.
Cisco has a one-year high of $26.49 and a one-year low of $16.68 with a market cap of over $123 billion. Regardless of the lowered rating from MKM Partners, Cisco Systems is able to experience an increase of around 183% in stock traders who put options on the stock. This is much higher than the average volume which is only around 17,900 whereas Cisco is able to acquire over 50,700 traders.
Cisco Systems put forth their quarterly earnings last August 14th where the company reported that it had $0.52 EPS or earnings per share. Its EPS was able to beat the general estimate by $0.01. The company did earn $12.40 billion for this quarter as predicted through the consensus estimate. With these numbers, it is easy to conclude that things are looking up for Cisco. This is despite having the CEO of the company, John Chambers, send Cisco a bill whenever he flies in his own jet to work.
This year alone, Chambers billed Cisco over $2.8 million for his jet expenses. Even though this is the case, the company's revenue for the last quarter increased 6.2% compared to last year. Due to its momentum, a number of analysts expect that Cisco Systems will reach $2.11 in EPS for the fiscal year.
It is without a doubt that the stock market is bullish to Cisco. This may be owed to the reality that smart connected devices have a growing demand for data. According to Cisco's graph, data usage has increased since September of 2012 and will continue its rapid growth until 2017Click to enlarge. Smartphones play a huge role, but tablets and laptops are the top two biggest contributors in data usage.
Alcatel-Lucent (ALU), one of Cisco's competitors, announced layoffs and so did Cisco where at the time of announcement the Cisco stock pulled back 8.85%. Unlike Alcatel-Lucent though, Cisco is doing well in the stock market even though Alcatel-Lucent does have a chance of recovering after the job cuts. This is because the much slimmer company will allow themselves to save billions as shown by its balance sheet where the Alcatel-Lucent stock has almost no shareholders' equity.
As for another competitor, Hewlett-Packard (NYSE:HPQ) has a much better position on the stock market compared to Alcatel-Lucent. HP is finally making good progress, which has the chance to stir the tech giant into the right path. CEO Meg Whitman has said that it may take up to five years for the company to get more stabilized revenue, but it will accelerate and move into a good direction by 2015. Despite the good position of HP and even the positive predictions about Alcatel-Lucent, only Cisco gets a buy rating from most analysts.
Being an inexpensive stock with great potential on dividend growth and a low payout ratio, Cisco stock has the potential to offer long-term profits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.