Shares of technology company Cisco Systems (CSCO) hit a new 52-week high of $29.99 on Feb 26, eventually closing at $29.91. The company returned 41.3% in one year and delivered a year-to-date return of roughly 8.3%. Average volume of shares traded over the last three months was roughly 30,178K.
What is Driving Cisco?
Cisco is the leading provider of IP-based networking and other products and has a well-diversified business. The company stands to benefit from its recent successful ventures including its “Internet of Everything” campaign and a cloud-based service called the Intercloud that connects private, public and hybrid clouds. Additionally, the company is poised to grow on the back of its drive toward cloud computing and increasing data flow on carrier and computing networks.
Moreover, the company gained momentum from strong fundamentals and better-than-expected second-quarter results released on Feb 11. Since then, the stock has moved up almost 11%.
Cisco’s second-quarter top line increased 7% year over year. The company benefitted from the broad-based strength in its product lines. Non-GAAP earnings of 50 cents beat the Zacks Consensus Estimate of 45 cents. Order growth in new markets such as software-defined networking was also encouraging.
For third-quarter fiscal 2015, Cisco expects revenues to increase in the range of 3% to 5% on a year-over-year basis. The relatively improved top-line projection further indicates that the company’s growth momentum is likely to continue. Non-GAAP gross margin is expected within 61–62% due to cost structure improvements. Earnings per share are expected within 51–53 cents, well above the Zacks Consensus Estimate of 48 cents.
The price appreciation may also be attributed to Cisco’s impressive record of returning cash through dividends and share buybacks. During the second quarter, the company declared a quarterly dividend of 21 cents per common share — up 10% from the previous quarter's dividend of 19 cents. Additionally, the company repurchased approximately 44 million shares for $1.2 billion.
We remain positive on the company’s strong cash position and ability to service its long-term debts. Moreover, continuous share buybacks and dividend increase will inspire investors’ loyalty through high returns.
Moreover, the Zacks Consensus Estimate for year-over-year revenue growth increased 3.4%, while that for earnings jumped 4.9% for fiscal 2015. Additionally, the company has delivered an average earnings surprise of nearly 5.57% over the trailing four quarters. Cisco’s strong revenue growth, solid financial conditions, growth in areas like cloud computing, mobile, data center and strong long-term growth potential position it favorably.
Cisco currently has a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other well-ranked stocks in the same space include Emulex Corporation (ELX), Infinera Corporation (INFN) and NetScout Systems, Inc. (NTCT). All these stocks sport a Zacks Rank #1 (Strong Buy).
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