Long time readers of my columns know that I have been a big bull on Cisco Systems (NASDAQ:CSCO) for quite some time. The networking giant disclosed after the bell an earnings report that confirmed my optimism. It's three plus percent yield and growing dividend payout is the primary reason it is a core holding in my income portfolio. These results should prove to be an inflection point to move the stock significantly higher.
Key highlights from Cisco's earnings report:
- Earnings came in at 51 cents a share, two cents above consensus estimates.
- Revenues also exceeded consensus by some $20mm.
- Data center growth was particularly impressive clocking in with more than 70% sales increases.
- Emerging markets grew some 13% Y/Y.
- Even public sector growth came in with positive growth of 5% despite worries about "sequester" cuts.
- Cisco's CEO John Chambers also stated that the U.S. economy is slowly and steadily improving.
4 reasons CSCO still has upside from $22 a share:
- After bumping its dividend payout once again, this time by over 20%, in late March; the shares now yield north of three percent (3.2%).
- CSCO is selling near the bottom of its five year valuation based on P/E, P/CF, P/S and P/B.
- This quarter marked the 13th straight time Cisco has beaten the bottom line consensus estimate. CSCO sells at just over 10x forward earnings, a discount to its five year average (12.5).
- That PE ratio comes down roughly 40% when you consider the company has over $45B in net cash/marketable securities on its A+ rated balance sheet. S&P has a "Buy" rating and a $26 price target on the stock.
Disclosure: I am long CSCO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.