“And that’s why I think Cisco Systems, Inc. (NASDAQ:CSCO) is one of the best Dow stocks you can buy today,” I said. “This stock is about to enter another growth phase.”
Fast-forward 24 hours, and it just feels good to be right.
Cisco’s third quarter saw revenue right in line with the $12.2 billion analyst target, but adjusted earnings $0.51 per share exceeded analyst expectations by $0.02. Share prices soared as high as 14.2% overnight, reaching levels not seen since November 2010.
“We have the right products, the right solutions and our customers are coming to us to solve their biggest business problems,” said Cisco Systems, Inc. (NASDAQ:CSCO) CEO John Chambers. “The pace of change is increasing and Cisco is well positioned.”
Indeed, Cisco Systems, Inc. (NASDAQ:CSCO) is making strides in all the right high-margin markets. Sales were particularly strong in the data center segment, where Cisco now pairs its Unified Computing System servers with high-end network routers under the Nexus brand. Customers get an easy-to-manage computing package with high performance for in-house cloud services, Cisco Systems, Inc. (NASDAQ:CSCO) scores a double sale, and it’s all high-margin business.
All told, Cisco’s operating margin jumped to 28%, far ahead of recent trends and a throwback to Cisco Systems, Inc. (NASDAQ:CSCO)’s heyday of market dominance in the early 2000s. These margins often serve as a good proxy for Cisco’s share prices, so this is an encouraging sign for Cisco Systems, Inc. (NASDAQ:CSCO) investors.
CSCO Operating Margin TTM data by YCharts. This chart does not account for the third quarter’s 28% operating margin.
It’s also a sign of Cisco Systems, Inc. (NASDAQ:CSCO)’s current pricing power. Juniper Networks, Inc. (NYSE:JNPR) scrapes along with a trailing operating margin of a mere 8%. Ciena Corporation (NASDAQ:CIEN) and Alcatel Lucent SA (NYSE:ALU) suffer under negative operating margins. None of these competitors has the massive economies of scale that Cisco boasts. Juniper can nearly match Cisco Systems, Inc. (NASDAQ:CSCO) in terms of market history and proven performance. Ciena Corporation (NASDAQ:CIEN) and Alcatel Lucent SA (NYSE:ALU) still know how to cook up a high-performance router for long-distance service providers, but there’s no integrated package there. Alcatel Lucent SA (NYSE:ALU) is fighting for its corporate life with financing deals and a leaseback of its own headquarters. In short, these rivals can only hope to beat Cisco at its own game if they’re willing to undercut its prices. Cisco Systems, Inc. (NASDAQ:CSCO) is the only place to go for end-to-end networking — now with an integrated server solution to boot.
Cisco’s shares have delivered on that promise, beating all of these rivals over the last one- and five-year periods. And if Chambers’ team keeps executing like this, I don’t see any reason why this trend would reverse anytime soon.
So maybe you missed last night’s Cisco Systems, Inc. (NASDAQ:CSCO) jump, but it’s not too late to invest in this stock yet. The long-term story is still developing.
The article Why Cisco Lifted the Dow Today originally appeared on Fool.com.
Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of Cisco Systems. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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