Is Cisco a Value Stock for 2013?

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Cisco Systems, Inc. (NASDAQ:CSCO)’s impressive financial performance and fairly cheap valuation have made it a popular stock pick for 2013. Read StreetAuthority’s case for Cisco. The first quarter of Cisco’s fiscal year ended in October 2012. Revenue for the quarter was up 6% from the first quarter of the previous fiscal year, primarily due to higher services revenue. With the company generally holding cost increases in check- operating expenses were actually down, though this was primarily due to lower restructuring charges- earnings swelled 18%. A modest decrease in share count helped bring earnings per share to 39 cents. Cash flow from operations was also up in the quarter, approaching $2.5 billion.

RENAISSANCE TECHNOLOGIES

Cisco Systems, Inc. trades at 13 times trailing earnings, and if we use the 39 cents per share figure from the most recent quarterly report and annualize it we get a crude P/E of 13 as well. Analyst expectations are for $1.96 in EPS for the current fiscal year, and the current stock price is only 10 times that figure. We’ve covered Cisco’s impressive cash flow generation, and when we look at the enterprise value implied by the current stock price it is only 6x trailing EBITDA- not as obviously low a multiple but still well within value territory for such a large and growing company.

59 hedge funds and other notable investors in our database of 13F filings owned Cisco Systems, Inc. at the end of the third quarter of 2012, which made it one of the most popular tech stocks among hedge funds (see the rest of the top ten). Renaissance Technologies, founded by billionaire Jim Simons, initiated a position of almost 14 million shares in Cisco between July and September (check out Renaissance’s stock picks). Billionaire Ken Fisher’s Fisher Asset Management increased its stake in Cisco by 77% to a total of 38 million shares and this made Cisco one of the fund’s top five picks (find more of Fisher’s favorite stocks). Sandy Nairn’s Edinburgh Partners was another major investor in the company.

It turns out that Cisco looks quite a bit cheaper than its peers:

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