A prudent investor knows the value of retaining stocks that hold promise despite underlying market challenges. We believe Cisco Systems (CSCO - Free Report) is one such stock which has enough potential to rally once market conditions improve.
Investors must retain the stock in their portfolio at the moment, as it seems well poised to yield long-term gains.
Cisco is increasing strength across its Security and Applications segments. The recent acquisition of Accompany bodes well for company’s AI initiatives and also empowers it to lock horns with Microsoft’s (MSFT - Free Report) LinkedIn.
Shares of this Zacks Rank #3 (Hold) stock have gained 38.8% in the past year, outperforming the industry’s rally of 35.9%.
The momentum can be attributed to its robust product portfolio, acquisition synergies and strong fundamentals.
Let’s delve deeper and find out why the stock is poised to sustain the momentum ahead.
Positive Earnings Surprise History
Cisco displays an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing three quarters, delivering a positive average earnings surprise of 3.3%.
Northbound Revisions & Growth Projections
The company has been witnessing upward estimate revisions, reflecting analysts’ optimism. The stock has witnessed the Zacks Consensus Estimate for current-year earnings being revised 1.5% upward to 69 cents, over the last 30 days, translating to year-over-year growth of 13.1%.
Notably, management anticipates non-GAAP earnings between 68 cents and 70 cents per share.
Furthermore, the company has a long-term expected EPS growth rate of 6%.
Robust Performance of AppDynamics& Security: Key Catalyst
Application software businesses such as AppDynamics and Jasper which are reported under company’s Applications segment, witnessed significant traction. Additionally, UC infrastructure and TelePresence endpoints also drove collaboration revenue growth.
Per a Synergy Research Group article, both Cisco and Microsoft are close contenders, with the former taking a marginal lead in the enterprise collaboration market, pertaining to fourth-quarter 2017 revenues data.
The company is also well positioned to seize the opportunity through recent AI-based Accompany buyout. Notably, per a Tractica report, enterprise AI applications revenues are projected to grow at a CAGR of 64.3% from $358 million (in 2016) to a whopping $31.2 billion by 2025.
With Webex Meetings, Webex Devices and Webex Teams yielding results, we believe Cisco is well poised to capitalize on the emerging AI based enterprise applications.
Moreover, impressive performance of Security segment deserves a special mention. Solid demand witnessed by web security, unified threat and advanced threat solutions remain segment’s growth drivers.
Cisco’s AI-driven Talos intelligence platform blocks 20 billion threats per day. Recently, Talos unit identified that almost 500K storage devices and routers across 54 countries are infected with malware that similar in nature to the one used to attack Ukraine.
The company’s efforts to leverage machine-learning to deploy security platforms to mitigate online risks on a real-time basis bode well.
Smart & Bold Moves Keeps the Investors Hooked
The recent divestiture of a portion of Cisco’s previously acquired NDS video assets to Permira is a welcome move. We believe this smart step is likely to mitigate the sluggishness persistent in its other products segment.
Cisco recently removed all online advertorials from Alphabet’s (GOOGL - Free Report) YouTube platform to safeguard its brand image. We believe Cisco’s strong step to prioritize its brand image is prophesying an AI future which is unbiased in nature. The platforms which earn considerable revenues by streaming ads need to manage their content responsibly.
Cisco reported better-than-expectedthird-quarter fiscal 2018 results.Revenues increased 4.4% year over year to $12.463 billion and marginally surpassed the Zacks Consensus Estimate of $12.421 billion.
Non-GAAP earnings of 66 cents per share came ahead of the Zacks Consensus Estimate by a penny. Further, the figure rose 10% from the year-ago quarter.
Order strength and improving traction of the subscription-based model were other tailwinds.
The aforementioned points will enable Cisco to remain afloat in difficult times. However, weakness in the switching and routing continues to be a headwind. The company continues to face intense competition from Arista Networks (ANET - Free Report) which recently announced its intention of manufacturing switches that connect campus networks. This move of Arista is likely to hurt Cisco as it holds a dominant position in that market.
Moreover, ongoing transition to subscription-based model remains a headwind at least in the near term.
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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