Is Cisco a Value Stock for 2013?

Cisco’s peers include Alcatel Lucent SA (NYSE:ALU), Riverbed Technology, Inc. (NASDAQ:RVBD), Palo Alto Networks Inc (NYSE:PANW), and Juniper Networks, Inc. (NYSE:JNPR). None of these companies has particularly stable earnings and earnings estimates which inspire confidence in us. Alcatel Lucent is actually supposed to be unprofitable this year and sink further into the red ext year going by analyst expectations. In its report for the third quarter of 2012 the company disclosed that its revenues had come in slightly lower than a year earlier. We think that we’d avoid the stock. Palo Alto is also close to zero profitability, and even optimistic projections for future growth yield a forward P/E of over 100 (for the fiscal year ending in June 2014). It makes sense to see some growth here with revenue up over 50% in its most recent quarterly report compared to the same period in the previous fiscal year. However, we think that the current valuation has already captured enough growth that Palo Alto isn’t a buy either.

Riverbed and Juniper, meanwhile, have high earnings multiples when we look at trailing performance but Wall Street analysts insist that the next year will be much better. As a result their forward P/Es are in the teens- still at a premium to Cisco even ignoring the dependence on a large increase in net income. Riverbed has been improving on both top and bottom lines, but Juniper’s earnings actually collapsed in the third quarter of 2012 compared to Q3 2011. We don’t like either of these stocks and it’s possible that Juniper would make for a good short to pair with a long in Cisco.

Cisco appears to be at a good price, and certainly looks like a value stock compared to its peers. We think that investors should take a closer look at the company and consider it for their portfolio.

Disclosure: I do not own any stocks mentioned in this article.