Cisco Systems (CSCO): Cisco, the fallen star of the techno-bubble show, is a California-based multinational corporation. Cisco is in a variety of businesses with the primary concentration in the designing and marketing of consumer electronics, networking, voice, communications technology and services. Since the company is in the diversified electronics business, Cisco does not have a single direct competitor. Yahoo Finance gives Hewlett-Packard Company (HPQ), Juniper Networks, Inc. (JNPR), and Alcatel-Lucent (ADR) as close competitors. Here, is a brief analysis of Cisco:
Income Statement (in Millions)
| Sales | Total Net Income | EPS | Dividends |
2001 | $22.293,00 | -$1.014,00 | -$0,14 | $0,00 |
2002 | $18.915,00 | $1.893,00 | $0,25 | $0,00 |
2003 | $18.878,00 | $3.578,00 | $0,50 | $0,00 |
2004 | $22.045,00 | $4.968,00 | $0,70 | $0,00 |
2005 | $24.801,00 | $5.741,00 | $0,87 | $0,00 |
2006 | $28.484,00 | $5.580,00 | $0,89 | $0,00 |
2007 | $34.922,00 | $7.333,00 | $1,17 | $0,00 |
2008 | $39.540,00 | $8.052,00 | $1,31 | $0,00 |
2009 | $36.117,00 | $6.134,00 | $1,05 | $0,00 |
2010 | $40.040,00 | $7.767,00 | $1,33 | $0,00 |
(Click to enlarge)
By looking graph above, we can see observe that both sales and net income is in an upward trend since 2003. There has been a temporary fall-back in 2009. Cisco was deeply affected from the financial crises, and total net income sharply reduced in 2009. Revenues also slashed in the year 2009, as well as during the period from 2001 to 2003. EPS trend have been upward in the last decade, except the year of 2009.
Dividend Policy: Cisco has no regular dividend policy and the company did not pay any dividends in the last decade. The announcement on March 19 that Cisco would be paying a paltry $0.06 dividend came as a surprise to many of us. At the same time, it was a disappointment, since the expectations was higher for many investors.
Balance Sheet (in Millions)
| Current Assets | Current Liabilities | Long Term Debt |
2001 | $35.238,00 | $8.118,00 | $0,00 |
2002 | $37.795,00 | $9.139,00 | $0,00 |
2003 | $37.107,00 | $9.078,00 | $0,00 |
2004 | $35.594,00 | $9.768,00 | $0,00 |
2005 | $33.883,00 | $10.709,00 | $0,00 |
2006 | $43.315,00 | $19.403,00 | $6.332,00 |
2007 | $53.340,00 | $21.860,00 | $6.408,00 |
2008 | $58.734,00 | $24.381,00 | $6.393,00 |
2009 | $68.128,00 | $29.481,00 | $10.295,00 |
2010 | $81.130,00 | $36.863,00 | $12.188,00 |
From 2001 to 2010, current assets more than doubled from the level of $35.24 billion to $81.13 billion. Current liabilities have been steadily increasing in the last 10 years, as well. Before 2006, there was no long-term debt, but after this year long-term debt accumulated to almost $10 billion. The three budget items have been steadily rising since the last five years. The most significant upward movement occurred in the years between 2009 and 2010.
(Click to enlarge)
Historical Fundamentals
| Avg P/E | Net Profit Margin (%) |
2001 | -261 | -4,5 |
2002 | 65,3 | 10 |
2003 | 28,7 | 19 |
2004 | 31,8 | 22,5 |
2005 | 21,6 | 23,1 |
2006 | 21,3 | 19,6 |
2007 | 22,1 | 21 |
2008 | 20,7 | 20,4 |
2009 | 17,7 | 17 |
2010 | 17,9 | 19,4 |
At the peak of techno-bubble in 2001, both P/E and profit margin were extremely low, and in fact, they were negative. However, at that time, investor bullish sentiment was so strong that Cisco reached a market cap of $500 billion. Since then, profit margins and average P/E ratios have been going in opposite directions. P/E reached the inter-decade peak value 31.8 in 2004. Net profit margin has been fluctuating between 17% and 23.1% in the last seven years. The P/E ratio fallen back to 17.9 in 2009 from the mighty three-digits of late 90s.
Direct Competitor Comparison
CSCO | ALU | HPQ | JNPR | |
Market Cap: | 95.80B | 14.58B | 87.47B | 20.61B |
Employees: | 70,700 | 79,796 | 324,600 | 8,772 |
Qtrly Rev Growth (yoy): | 6.00% | 22.60% | 3.60% | 26.40% |
Revenue (ttm): | 42.36B | 23.63B | 127.16B | 4.09B |
Gross Margin (ttm): | 62.56% | 34.83% | 24.14% | 66.98% |
EBITDA (ttm): | 11.05B | 1.56B | 18.25B | 940.02M |
Operating Margin (ttm): | 21.01% | 2.13% | 10.49% | 19.17% |
Net Income (ttm): | 7.58B | -475.76M | 9.12B | 618.40M |
EPS (ttm): | 1.32 | -0.23 | 3.92 | 1.15 |
P/E (ttm): | 13.11 | N/A | 10.31 | 33.50 |
PEG (5 yr expected): | 1.04 | 5.43 | 0.80 | 1.35 |
P/S (ttm): | 2.26 | 0.62 | 0.69 | 5.03 |
Cisco's gross margin of 62.56% is among the best in the industry. Operating margin of 21.01% is also much higher than the competitors. Only Juniper has the same profitability as Cisco. HP, with a PEG value of 0.8, is also an interesting stock to watch for the next five years. Cisco's expected PEG ratio of 1.04 shows analysts' strong growth expectations. Cisco will continue to be a profit-maker according to analysts. The current P/E ratio of 13.1 supports their opinion. The stock has been subject to extreme volatility, and lost almost 30% in a year whereas other technology stocks made remarkable gains. As we are experiencing a strong growth, the demand for Cisco products will get higher. Analysts have target price ranges around $20 to $25. Given the recent beat-down, the current low-price of $17.5 has enough safety of margin for both new and old investors. Cisco might never reach $500 billion again, but it will be a safe, medium-growth investment for the future.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CSCO, HPQ over the next 72 hours.
