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Cisco Systems, Inc. (CSCO): The Latest

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Many of the companies regarded as “old” tech have been struggling in recent years due to the soft macroeconomic environment and reduced corporate IT spending. Hardware producers especially have suffered as a result. Amid a mixed earnings season, Cisco Systems, Inc. (NASDAQ:CSCO) delivered results that came in above analyst expectations, dispelling some of investors’ worries as a result of soft numbers from competitors.

Third-quarter Earnings and Sector Worries

 Cisco Systems, Inc.On Wednesday, Cisco Systems, Inc. (NASDAQ:CSCO) delivered its Q3 2013 report, which came in slightly ahead of the consensus. Quarterly EPS was $0.51 versus an estimate of $0.49, up from $0.48 in the year earlier period for a 6% increase. Revenue was in-line, rising 5.4% to $12.2 billion, for the ninth consecutive quarter of record revenue. Investors cheered the news, sending the stock up 8%, as many investors were worried going into the report because of poor results from competitors Juniper Networks, Inc. (NYSE:JNPR) and International Business Machines Corp. (NYSE:IBM).

Juniper Networks, Inc. (NYSE:JNPR) recently announced earnings that came in ahead of the consensus, beating by $0.05, whereas revenue came in below expectations. While this wasn’t particularly bad, it was the outlook for Q2 2013 that had investors worried. This guidance was only just able to meet the lower end of expectations, which sent the stock down on the news. However, the stock gained following Cisco Systems, Inc. (NASDAQ:CSCO)’s report.

In April, International Business Machines Corp. (NYSE:IBM)’s bleak Q1 report missed the consensus by $0.05, sending the stock plunging some 8% on the day and spooking the sector. Revenue was down 5.1% from the period a year before and 20.1% sequentially. According to many a reflection of declining business IT spending, IBM saw sales lower across the board. Hardware was hit especially hard, with a 46.1% sequential decline in revenue.

Cisco Systems, Inc. (NASDAQ:CSCO)’s results benefited especially from a strong performance in cloud computing and the wireless business. Revenue from the cloud data center was up 77%, and revenue from the wireless business was up some 27%. The company is working hard on keeping its strong position in these core growth markets, and developing innovative technology to stay ahead.

The fact that US commercial business was up 13% has relieved some anxiety about reduced corporate IT spending in the US. The company’s margins furthermore were stable, with non-GAAP gross margin around 63% and up a bit from the last quarter. Not everything was positive in the report however, as the company is still facing headwinds in China expected to last several more quarters.

Valuations and Metrics

Cisco Systems, Inc. (NASDAQ:CSCO) is a fairly inexpensive stock at the moment, trading at only 12.20 times trailing earnings versus Juniper’s hefty 34.14 and IBM’s 14.02. The price-to-book is fairly low at 2.03, while the company’s gross margin of around 63% is impressive. The operating margin of around 23% is way over the 5% industry average, reflecting the company’s strong execution. Regarding the balance sheet, the company has around $16.3 billion in debt, for a total debt to equity ratio of about 30, and over $46 billion in cash. Finally, the firm has a strong operating cash flow of nearly $12 billion.

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