The last time I wrote about Cisco Systems, Inc. (NASDAQ:CSCO) I stated, "…I'm not going to be pulling the trigger on this particular name right now." Since the last article, it popped a whopping 0.09% versus the 5.96% gain the S&P 500 (NYSEARCA: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 February 12, 2014, the company reported fiscal second quarter earnings of $0.47 per share, which beat the consensus of analysts' estimates by a penny. In the past year, the company's stock is up 3.55% excluding dividends (up 6.54% including dividends), and is losing to the S&P 500, which has gained 21.57% 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.
The company currently trades at a trailing 12-month P/E ratio of 14.28, 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 10.27 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.1 per share and I'd consider the stock inexpensive until about $32. The 1-year PEG ratio (2.58), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 5.53%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
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 3.52% with a payout ratio of 50% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.2%, 14.2% 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 3.52% 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.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock is near oversold territory with a value of 38.13 and downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($21.57), I'm looking at the 50-day simple moving average (currently $22.10) to act as resistance and $21.16 to act as support for a risk/reward ratio which plays out to be -1.9% to 2.46%.
- The company raised $8 billion in a bond sale a week ago. The money will be used to buy back stock, issue dividends, and repay some current notes.
- The company reported earnings which beat by a penny on $11.2 billion in revenue which beat by $170 million. The revenue number was 7.4% lower than it was last year, which is never a good sign.
- On the earnings call, the company announced in-line guidance for the following quarter but stated that product orders remain under duress.
The company saw very strong demand for its debt offering last week, this was the second largest offering brought to market by a company in the technology sector. The company obviously thinks its stock is inexpensive if it's willing to issue debt to buy it back. Fundamentally the company is inexpensively priced based on future earnings but expensive on future growth potential. Financially, I believe we have a high yield that is secure but the financial management ratios are deteriorating. On a technical basis I believe there is more downside to come. Due to the expensive growth fundamentals, bearish technicals, and deteriorating financials metrics I'm not going to pull the trigger on this particular name right now.
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!