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Cisco (CSCO) Closes Duo Buyout to Enhance Security Business

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Cisco Systems (CSCO - Free Report) recently announced that it has successfully closed the acquisition of privately-held Duo Security for $2.35 billion in cash.

Duo leads the market in trusted access and multi-factor authentication (MFA) technologies. It aids enterprises in defending against breaches through its effective cloud-based Trusted Access product suite. We believe that the purchase of Duo is likely to help the company expand its security businesses.

The integration of Duo’s zero trust MFA technology with Cisco’s network and cloud security platforms is likely to further enhance security features and mitigate phishing incidents on devices. This acquisition will aid Cisco to deliver on its commitment of safeguarding customer data while focusing on people-centric secure enterprise IT approach.

Notably, shares of Cisco have returned 46.3% in the last year, outperforming the industry’s rally of 42.3%.

 

Synergies From Acquisition

Cisco’s expanding footprint in the rapidly growing security market presents significant potential. With increasing influx of security threats and an ever-changing workforce, Cisco is looking to add security offerings to its product suite.

With this buyout, Cisco’s customers will be able to experience greater flexibility in operations, enhanced multi-level security, increased awareness and greater administrative control. This additional level of protection will aid the company gain the trust of its users, consequently increasing adoption of its products and ultimately boosting top-line.

Cloud technology is being increasingly adopted across businesses in order to innovate, handle greater volumes of sensitive data, protect against cyber-security threat and drive growth. This merger will help both the companies in leveraging each other’s resources to generate an innovative business model and make the environment more secure.

To Conclude

Over the past few years, strategic acquisitions have played an important role in shaping Cisco’s growth trajectory. The company closed the acquisition of Accompany for $270 million. It also announced it plans to acquire Burlingame, CA-based July Systems. Cisco remains well poised to leverage the modern technology at various levels of its operations and gain a competitive edge.

Continuous strategic acquisitions should support Cisco in expanding its product offerings, strengthening footprint in the security markets and building customer base. Further, these acquisitions reveal the company’s intention to shore up its software and service capabilities in order to diversify revenue streams toward sources of a more recurring nature. It is taking this initiative in a bid to mitigate the cyclicality associated with hardware sales.

However, these acquisitions are likely to keep Cisco’s operating margins under pressure, as it requires significant amount of new investments.

Zacks Rank and Other Stocks to Consider

Cisco carries a Zacks Rank #2 (Buy).

Few other top-ranked stocks in the broader technology sector are Salesforce.com Inc (CRM - Free Report) , Garmin Ltd. (GRMN - Free Report) and NetApp, Inc. (NTAP - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Salesforce, Garmin and NetApp have a long-term expected earnings growth rate of 25%, 7.35% and 14.13%, respectively.

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