- Value investment – great dividends & repurchase program
- Beneficial Acquisitions – Sourcefire, Jasper
- Entry into the future: The IoT market segment
Cisco has recovered from its February lows of $22.51 to $27.62 at the time of writing this article. Despite an 18% recovery, Cisco seems to be fairly undervalued for a variety of reasons.
To most investors, Cisco has been a safe bet which offers stability and strong fundamentals. With a P/E of 13.68, P/B and P/S as low as 2.3 and 2.8 respectively, Cisco has delivered an Earnings of 2.02. Cisco currently gives a healthy 3.76% annual dividend yield and has a payout ratio of 41.62% making it very attractive to dividend investors.
Cisco has increased its quarterly dividends 6 times since it first announced dividends in 2011, and each time, it increased the dividends by atleast 10%.
To add to this, Cisco has a huge cash balance, which makes dividend cuts unlikely. According to its most recent balance sheet, it has $60.38 Billion cash! Cisco also aggressively buys back shares. It recently announced a $15 Billion repurchase program on top of its already existing repurchase plan of $97 Billion, out of which it had bought back $80 Billion over the years.
Cisco had ~30% marketshare in the Network Security Space during at the end of Q4 2015. In order to strengthen its position, acquired its competitors in the segment – Sourcefire. The tech giant has spread its wings to fly into the future with the IoT. Also, it recently completed its acquisition of Jasper, a leader in cloud based IoT service platforms. It offers scalable IoT systems for other enterprises in almost any industry, looking for IoT implementation. This opens up huge possibilities for the firm.
Entry into the future – IoT
Internet of Things, is the new hot topic in the industry. It is a technology that links smart objects to the internet. We have an increasing need to connect to the internet in our everyday life, and with this, the number of ‘smart’ things that can connect to the internet has been growing. IoT has a very wide application from toothbrushes to automobiles to construction to agriculture! – Yes, that’s right toothbrushes! Companies like Oral-B and Beam dental have come up with ‘connectable’ toothbrushes. Who needs a ‘smart’ toothbrush? According to an article by Techcrunch – “Mothers of young kids will see a sea of opportunity here: Someone can make a game rewarding kids for doing a good job brushing their teeth, saving the mom the need to ‘hover over their kids telling them that a couple of brushes is not good enough’ (actual quote from a Slack conversation)”
With opportunities so huge, let’s take a look at what Cisco’s been upto.
Cisco has portfolios for various products related to IoT – Network connectivity, Fog Computing, Security: Cyber and Physical, Data Analytics, Management and Automation, Application enablement Platform. Cisco has IoT solutions for – Manufacturing, Utilities, Oil and Gas, Smart and Connected cities, Public sector, Mining, Connected factories. What this means is that, for example, we can expect Safe and Efficient Mass Transit – The same platform that provides us Wi-Fi on a train will now also ensure that we are safe by monitoring the speed, location, status etc of each train in the transit system. The cameras located alongside the tracks will provide continuous security surveillance. Factories will get smarter, with each machine connecting and communicating with the other, it enables higher levels of efficiencies and monitoring the machines would be made easier.
Cisco acquired ThreatGrid and Lancope, boosting its cyber security potential. It recently released a research report, which said that 60% of the organizations are reluctant to innovate in areas such as digital products and services due to potential cybersecurity risks. Cybersecurity is no longer about reducing risks, but has become a part of the business strategy. This shows that a whole bunch of opportunities are out there, to whoever manages to address the issue of security threats.
Cisco has all it takes to be a value investment. A great dividend yield, a sneak peek into the future, I believe Cisco will be bullish in the longer run.
Disclaimer: This blog contains an aggregated view of analysts and opinions by the author. Do not consider this as financial advice. See http://stockal.com/legalities/