![]() Cisco holds the top market share position in nearly every subsection of the enterprise networking market, including campus and data center switching, networking software, routing, software-defined wide-area networking, or SD-WAN, and wireless access.Ĭisco also offers a comprehensive platform for cybersecurity. Cisco’s switches, wireless access points, routers, and networking software allow enterprises to create local networks and give those networks access to private clouds, public clouds, and the internet. It’s the only provider we see with a complete end-to-end portfolio for both on-premises and the cloud. These competitive advantages give us confidence in Cisco’s profits over the next 20 years.Ĭisco is the dominant force in enterprise networking. We think Cisco’s offerings for networking and cybersecurity are comprehensive and intertwined, with integrated software, hardware, and services creating a sticky overall solution and leading to pricing power. We assign Cisco an economic moat rating of wide, stemming from customer switching costs. Read more about Cisco’s fair value estimate. Though security has lagged peers of late, we think it can begin to slow market share losses with a more streamlined, feature-rich, cloud-based platform and more observability integration. We expect more rapid growth from Cisco’s security, collaboration, and observability businesses. We assume Cisco can stem its market share losses in networking, and expect strength from its newer product families with more software and subscription-based consumption models like the Catalyst 9000, Nexus 9000, and Cisco 8000. We think its largest core networking business, including services, will expand roughly 3% at midcycle, largely in line with the underlying market. We forecast 5% compound annual growth for Cisco through fiscal 2027, including an exceptional fiscal 2023 with 10% growth and 3%-4% midcycle growth thereafter. Our biggest drivers to Cisco’s valuation are the growth of its core networking business and its ability to maintain and improve both gross and operating margins. Our valuation implies adjusted price/earnings of 15 times for the fiscal year 2023, fiscal 2023 enterprise value/sales of 4 times, a free cash flow yield of 7%, and a next-12-month dividend yield of 3%. Our fair value estimate is $56 per share. With its 4-star rating, we believe Cisco stock is undervalued. We believe investors who buy in now can see strong upside. When we consider our long-term view of strong networking equipment demand, Cisco stock looks undervalued.We aren’t overly concerned, as we believe delayed orders from the past two years can make up for weak short-term demand, and the firm’s long-term fundamentals look healthy. Cisco stock continues to be weighed down by worries about demand in the short term.Cisco remains highly profitable, driven by its pricing power, competitive leadership in networking equipment, and wide economic moat.Cisco’s fiscal third-quarter results came in ahead of expectations, driven by its core sales of networking equipment, but were tempered by poor order growth.Here’s Morningstar’s take on what to think of Cisco’s earnings and stock. Cisco Systems CSCO released its fiscal third-quarter earnings report on May 17, 2023.
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