Should you add Cisco after shares sold off? I'm definitely considering it.
Cisco (CSCO) is a manufacturer of IP based networking equipment and items for use in information technology and communications. Cisco has traded sideways for the better part of the last year. The company reported earnings Wednesday after-market that did anything but "wow" the street. But, that's okay. Like Intel (INTC), I dig Cisco and I know they can start humming again.
Going into earnings, the bar was set low. On the heels of a recent JP Morgan downgrade, there wasn't much that the street was expecting of CSCO. Trading the last few days telegraphed that, as Cisco was one of the sole laggards on the bullish day of Janet Yellen's testimony in front of congress.
The company reported EPS of $0.47 and revenues of $11.2 billion. The company was expected to report second quarter EPS of $0.37 with revenues of $11.03 billion. Technically, it was a beat, but sentiment was poor after the report. The company guided inline for Q3 revenues to fall 6-8% year over year. They also noted that emerging market orders weren't hit as bad as some other companies that have reported recently.
Seeking Alpha was one of the first to report on the remaining details of the call:
- Cisco guides on its CC for FQ3 EPS of $0.47-$0.49, in-line with a $0.46 consensus. The company also reiterates FY14 EPS guidance of $1.95-$2.05 (consensus is at $1.98).
- However, the networking giant adds its orders fell 4% Y/Y for the second quarter in a row. The main culprits: Switch orders fell 6%, router orders 5%, and (thanks to plunging set-top sales) service provider video orders 20%.
- Switch sales (39% of product revenue) fell 12% Y/Y in FQ2, and router sales (21% of product revenue) fell 11%. SP video fell 22%, and collaboration (videoconferencing, WebEx) 7%; the latter could be a negative for Polycom (PLCM).
- Data center (UCS server) revenue only rose 10% after growing 44% in FQ1. However, Cisco asserts orders growth was in the mid-30s range. Wireless (dominated by Wi-Fi), another growth area in recent quarters, fell 4%. Aruba (ARUN) -2% AH in response.
Cisco then went to pull an anti-Intel, by increasing shareholder payouts, even in the face of lackluster results.
The bullish analysts were right when they suggested the company would continue to grow its dividends. The company came out and announced an increase of $0.02/share. The company's yield is now 3.3% and will grow if the stock trades down in the coming days.
The company also announced that it bought back $4 billion in shares in Q2.
The bullish action on CSCO calls that I pointed out in a previous article may not have telegraphed the move we're going to see from CSCO.
From a technical perspective, it's unlikely that we're going to see the stock push through its 200DMA. With the stock trading around $21.90 in after hours trading, the next question is going to be whether or not CSCO finds some support on its 50DMA. You can see from the chart above that it provided support at the beginning of this month.
Cisco continues to trade at an attractive P/E of around 12 and a forward P/E of just over 10. Put simply, the company isn't priced expensively. It looks like the company is going to sell off into the morning on Thursday, and that's great if you want to add. Cisco looks like an attractive buy to me at these levels - I would add here if I had the buying power. If I have a chance to free up some BP in the coming days and if Cisco starts to trend downward, I could nibble at it a bit. I love having a foundation of high yielding dividend stocks in my portfolio and Cisco fits the profile of companies I would consider for this.