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The last time I wrote about Cisco Systems, Inc. (CSCO) I stated that I'd be a buying another big position at that time because I felt it was a great value and had bullish technicals. Since the last article it has gained 3.44% versus the 2.14% gain the S&P500 (SPY) posted. Cisco designs, manufactures and sells internet protocol-based networking and other products related to the communications and information technology industry and provides services associated with these products and their use.

On November 13, 2013, the company reported fiscal first quarter earnings of $0.53 per share, which beat the consensus of analysts' estimates by $0.02. In the past year the company's stock is up 13.01% excluding dividends (up 15.23% including dividends) and is losing to the S&P 500, which has gained 30.58% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the technology sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 11.95, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 10.56 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.08 per share and I'd consider the stock inexpensive until about $31. The 1-year PEG ratio (2.25), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 5.31%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

02Oct13

23.24

12.49

10.32

2.25

34

1.60

7.80

03Nov13

22.57

12.13

9.97

2.26

34

1.63

7.45

03Dec13

21.26

11.55

10.13

2.10

32

2.03

5.69

04Jan14

21.98

11.95

10.56

2.08

31

2.25

5.31

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.09% with a payout ratio of 37% of trailing 12-month earnings while sporting return on assets, equity and investment values of 10%, 17.2% and 13.2%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.09% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

02Oct13

2.93

37

10.3

17.8

13.2

03Nov13

3.01

37

10.3

17.8

13.2

03Dec13

3.20

37

10.2

17.2

13.2

04Jan14

3.09

37

10

17.2

13.2

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock dropping from overbought territory with a bit of downward trajectory and a value of 59.42. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating the bullish momentum is losing steam. As for the stock price itself ($21.98), I'm looking at the 200-day simple moving average to act as resistance (currently $22.72) and the 50-day simple moving average (currently $21.68) to act as support for a risk/reward ratio which plays out to be -1.36% to 3.37%.

Recent News

  1. The company declared a quarterly dividend of $0.17 per share with an ex-date of 02Jan14 and payable on 22Jan14.
  2. The company acquired collaboration tool vendor Collaborate.com. The buyout was justified by saying Collaborate.com's products will complement Cisco's video conferencing and unified communications offerings.
  3. The company plans to invest up to $4 billion in Ontario, Canada. The investment will be focused on R&D and should add about 1700 jobs over the next six years, just four months after cutting 4000 jobs company-wide.

Conclusion

Cisco did indeed have a difficult quarter back in November, but this is definitely a value pick for 2014 and I would not be surprised to see the company return more capital to shareholders come April in the form of an increased dividend rate. Fundamentally the company is inexpensively priced based on future earnings but expensive on future growth potential. The estimated earnings potential for next year has dropped a bit. Financially it's a company with a solid balance sheet. Technically I see the stock dropping from overbought territory. The company has earnings estimates which keep getting lowered, is expensive with respect to its growth prospects, and has bearish technicals for the medium-term; it is for these reasons I'm not going to layer into my position here.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: High Yielding Cisco Is Not A Buy At These Levels