Cisco Systems, Inc. (CSCO): The Recap

Yesterday, I suggested that Cisco Systems, Inc. (NASDAQ:CSCO) was poised for an earnings-powered jump. The stock had moved nowhere in three months, even as the Dow Jones Industrial Average (INDEXDJX:.DJI) kept rising. Cisco’s rivals appeared to be losing market share to the networking giant, and the company is rebuilding itself around a more profitable business model.

“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.