Cisco: Paying Less To Own More

May.14.12 | About: Cisco Systems, (CSCO)

After last quarter results, we can see that Cisco (NASDAQ:CSCO) delivered another good quarter, increasing both revenue and profit.

3Q 2012 3Q 21011
Revenue millions $11,588 $10,866
Gross Profit millions $7,169 $6,659
Operating Income millions $2,750 $2,182
Net Income millions $2,165 $1,807
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That seems pretty good, the company managed to increase revenue once again and also increased net income, meaning that it's not doing so at the expense of the shareholder, and margins are not deteriorating.

Also, the balance sheet got even better. The company generated an operational cash-flow of $3 billion and cash and short-term investments increased to $48.4 billion.

3Q 2013 2Q2012 3Q 2011
Cash and Short Term Investments millions $48,412 $46,742 $43,367
Total Assets millions $91,154 $89,259 $85,350
Long Term debt millions $16,286 $16,299 $16,168
Total Equity $51,378 $49,246 $47,163
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If you imagine that you hold shares of this company and that it was privately held, you would probably be pretty happy with the results. In short, it's selling more, generating more income for shareholders, increasing equity and has a lot of cash available. You would also love that the company used some of that money to repurchase 27 million shares of somebody else, increasing your participation on the company without you needing to spend your money.

But the market didn't seem to like the results. The company was trading at $19 before the results came out, valuing the company at about $103 billion, and at the end of the week it closed at $16,5 for a market cap of $88.9 billion.

I'm sure that there is an "hesitant spending environment", as the CEO told at the conference call, but bear in mind that even so the company expects to continue to increase revenue and profit. Also, there is a very shareholder friendly authorized share repurchase program of $7.7 billion still available.

When the company was trading at $19, it was already offering a good valuation for such a healthy balance sheet and net income creation. This last quarter just managed to confirm all of those good things and the market reaction delivers a great opportunity to invest in Cisco.

After all, you are paying less to own more.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.