Is Cisco Systems, Inc. (CSCO) a Good Stock to Buy?

Revenue has been showing little change, so it’s likely that any improvement at Alcatel-Lucent will come from cost reductions. The stock has rallied over the last year, rising 80%. Palo Alto has seen very low earnings numbers as well, and even though the sell-side expects EPS to rise next year the forward P/E is more than 100. Revenue growth was over 50% in its most recent quarter compared to the same period in the previous fiscal year, so the business is expanding rapidly, but that valuation still doesn’t seem attractive.

While Juniper Networks and Riverbed are also expensive in trailing earnings terms, these stocks trade between 14 and 16 times forward earnings estimates and so if they can hit analyst targets they should be at least somewhat reasonable priced (though they’d still need to grow from that point in order to look like good values). Juniper’s profits have been up strongly in percentage terms, but revenue growth has been only modest and so we’d be skeptical that the company can increase earnings at decent rates in the future; it’s also highly exposed to the overall economy with a beta of 2.3. Riverbed features an even higher beta, at 2.6, and so clearly neither stock would be a good pick for investors worried about a potential bear market. Riverbed did see strong sales growth in its last quarterly report compared to the first quarter of 2012, and analysts are bullish over the long term with a five-year PEG ratio below 1, but it should probably be avoided until actual earnings numbers start looking better.

As a result none of Cisco’s peers look that interesting at this time. The stock itself, however, is trading at a reasonable trailing P/E (particularly compared to these similar companies) and there has been modest growth recently with enough cash flow to supplement future earnings growth by buying back shares. As such it appears worthy of further consideration.

Disclosure: I own no shares of any stocks mentioned in this article.