Cisco (CSCO) was on its way to becoming a fairly valued stock before its weak guidance send the stock down. This opportunity is presenting another entry point into the stock for patient, long term investors. Cisco, the company, isn't going anywhere with its wide moat and numerous networking products. The valuation metrics also agree. The two more relevant metrics here are the trailing metrics and the analyst consensus as its very hard to find a close comp to Cisco because of its size. They both suggest the stock is undervalued. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Cisco Systems' trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Cisco Systems' current P/B ratio is 1.8 and it has averaged 3.2 over the past 5 years with a high of 6 and low of 1.9. Cisco Systems' current P/S ratio is 2 and it has averaged 3.3 over the past 5 years with a high of 5.6 and low of 2. Cisco Systems' current P/E ratio is 12.3 and it has averaged 18 over the past 5 years with a high of 26.2 and low of 11.9.
Price Target: The consensus price target for the analysts who follow Cisco Systems is $21. That is upside of 29% from today's stock price of $16.69 and suggests that the stock has room to run from current levels.
Forward Valuation: Cisco Systems is currently trading at about $17 a share with analysts expecting EPS of $1.92 next year, an earnings increase of 4% y/y, for a forward P/E ratio of 8.7. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Hewlett-Packard (HPQ) is currently trading at about $21 a share with analysts expecting EPS of $4.4 next year, an earnings increase of 9% y/y, for a forward P/E ratio of 4.8. Juniper Networks (JNPR) is currently trading at about $17 a share with analysts expecting EPS of $1.17 next year, an earnings increase of 38% y/y, for a forward P/E ratio of 14.7. Alcatel-Lucent (ALU) is currently trading at about $2 a share with analysts expecting EPS of $0.24 next year, an earnings increase of 20% y/y, for a forward P/E ratio of 6.5. The mean forward P/E of Cisco Systems's competitors is 8.7 which suggests that Cisco Systems is fairly valued relative to its publicly traded competitors.
Earnings Estimates: Cisco Systems has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 1 cents and 4 cents from consensus estimates or about 2.1% to 10.3% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin for such a large company which suggests that the stock may experience upside from earnings surprises.
Price Action: Cisco Systems is up 2.7% over the past year, outperforming the S&P 500, which is up 2.4%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $19.36 and below its 200 day moving average, which sits at $18.21.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.