CSCO Fundamental Research Investment Analysis, Cisco Systems, Inc.

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The Razor's Edge

2-Year Price History

Recent Price
(2/5/2009)
$16.35
52-Week Price
$11.78 - $27.72
Market Capitalization
$95.7 Billion
Dividend Yield
0.00%
Most Recent Dividend
$0.00

About Cisco Systems, Inc.

Cisco Systems, Incorporated is considered to operate in the Technology sector. They specifically operate in the Networking & Communication Devices business segment contained within the Computer Hardware industry.

The Company designs, manufactures and sells Internet Protocol based networking and other products related to the communications and information technology industry and provides services associated with these products and their use.

Ockham's Rating

At Ockham Research, we believe that there is extremely useful information to be gleaned from historical evidence. When a stock is out of line with historical norms it could definitely be a signal that it is overvalued or undervalued. But as proponents of the Efficient Market Hypothesis will tell you, the market is never wrong about stock prices because everything that can be known about a stock has already been priced in. However, in extreme cases, such as the Tech bubble in the early 2000’s or more recently the credit crisis demonstrates there are certainly times where historical evidence can be misleading. Episodes such as this do prove that times of great market correction either positive or negative can be driven by factors outside of fundamentals.

Well, what can you say about this market? No one likes to see the market going down so rapidly, but in times like these value investors should be cautiously opportunistic, as the market's decline has certainly uncovered some great bargains. We are simply reiterating CSCO's Undervalued rating as of this week, as CSCO's sector has resisted the downturn to some extent. Our analysis of this stock is little changed since last week's report, but please continue reading for further justification of our Undervalued rating.

For starters, the price of CSCO declined from $15.89 as of 01/24/2009 to a price of $14.97 as of 01/31/2009. While this decrease of 5.79% was not large enough for Ockham to upgrade the stock, it does however slightly increase the attractiveness of CSCO, assuming that the fundamentals remain at current levels.

As of this report, there have been no meaningful adjustments in cash earnings expectations or guidance in the last week.

CSCO Stock Evaluation

As noted in the Recommendation Summary, we are content with maintaining our Undervalued rating on CSCO. Although there has been no additional earnings guidance offered by CSCO's management in the last week, the stock price has decreased by 5.79%, which is a positive from a value perspective. However, while the price decrease does make the stock more attractive, it is only marginally more attractive and not enough to warrant an upgrade. Find more on this and other fundamental factors in our analysis in the paragraphs that follow.

CSCO Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at CSCO through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 5.64x and 3.09x respectively.

Utilizing this range we can see that CSCO’s current Price to Sales per share ratio of 2.10x is significantly below its average levels historically. In fact, with a current price of $14.97, CSCO is a full 52% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for CSCO.

CSCO Cash Earnings

Looking at CSCO specifically in their Cash Earnings capabilities, Ockham views CSCO as significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for CSCO to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 24.37 and a 14.11 low over the same period.

Now that CSCO’s current price is $14.97 and its Price to Cash Earnings ratio is 7.92, we are very positive on its outlook from the cash earnings perspective. In fact, CSCO is now trading a full 59% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why CSCO has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

CSCO Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations. While we do like to see companies with healthy and growing dividends, it is not appropriate for all companies, especially those focused on growth. We regard CSCO as neutral in terms of dividends because they have no history of paying a dividend and continue to reinvest that money for growth purposes.

Peer Comparison

:

Cisco Systems, Inc. Industry Grouping

(2/5/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding CSCO) 7.42 6.32 » 301.83 1.10 0.72 » 8.45 16.87% 26.92%
*10 year range does not include current year values
International Business Machines Corp. IBM $124.1 Billion $92.41 6.84 5.61 » 27.38 1.13 0.90 » 2.68 4.00% 29.90%
Cisco Systems, Inc. CSCO $95.7 Billion $16.35 7.92 10.95 » 261.76 2.10 2.99 » 30.95 15.94% 22.80%
Apple, Inc. AAPL $85.7 Billion $96.46 12.86 9.73 » 186.01 1.97 0.75 » 5.63 39.23% 18.06%
Hewlett-Packard Company HPQ $84.8 Billion $35.09 6.25 6.18 » 62.91 0.74 0.54 » 3.10 10.13% 14.46%
EMC Corp. EMC $24.0 Billion $11.77 6.99 5.81 » 1171.43 1.39 1.16 » 25.97 19.46% 9.36%
Dell, Inc. DELL $18.3 Billion $9.43 4.17 4.25 » 61.40 0.28 0.27 » 4.87 11.54% 62.82%
Current
Rating on:
CSCO
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RazorWire™ & Community Discussion

Closing Bell
2/5/2009 4:58 PM
Closing Bell
As you can see, that was better than 1 1/3% back above the industrial average. Much of the gain coming from financials, technology and oil stocks that did well today. Nasdaq also higher due to strength in technology. Of course, we did have CISCO SYSTEMS, one of the highlights there on the street on the heels of its earnings and that was up 3 1/3% and that helped the nasdaq push forward with a 1-point move, 2% higher at 1546.
Countdown to the Closing Bell
2/5/2009 3:03 PM
Countdown to the Closing Bell
Interestingly enough I told you about the stock yesterday and the expected settlement and they're happy investors are happy to have the settlement done with and the situation over with, but the real hot stock of the day is CISCO SYSTEMS, now, we're rocking and rolling almost at session highs and we just pulled off the session highs here at the nasdaq with a ton of buying activity coming into the markets. We're seeing 2 billion shares trade hands here at the nasdaq. That's well above average and CISCO SYSTEMS a draw to the market. The company beat subdued expectations in the last investors very happy and they're also shrugging off the warning that sales could fall between 15 and 20%, you take good news when you can get it and that's having at related stocks, including names like CISCO SYSTEMS, java, juniper, they're all trading higher at this hour, google, apple, yahoo! Seeing strength today and google and ibm coincidentally announcing a deal where they're going to team up
Fox Business
2/5/2009 10:04 AM
Fox Business
Issue for bank of america stocks forced selling because some institutional big investors are not allowed to own shares that trade below $5, worth noting. Thanks a lot nicole. >> brian: all right, CISCO SYSTEMS, which is not only the world's biggest network equipment maker is one of the biggest companies in the world, beat wall street estimates in his fiscal second quarter. But was cautious about the rest of the year. Joining us now from their headquarters in san jose, california john chambers, CISCO SYSTEMS chairman and ceo. John, welcome to the program. Good to see you again. It's tough for you guys. First off,let's get macro. How do you see the world right now vis-a-vis your customers?
Squawk Box
2/5/2009 7:30 AM
Squawk Box
>>> checking out the top stories right now. Nasdaq futures are under pressure. The bell weather CISCO SYSTEMS indicates orders declined significantly last month. Orders in january were down 20% from a year ago. You can see what that's meant for CISCO SYSTEMS, and we'll be watching what it means for the nasdaq as well. >>> our guest host this morning met last week as the president sksd his ever growing economic recovery package and what it
Fast Money
2/4/2009 5:41 PM
Fast Money
Earlier? Does that mean anything? >> always out. It doesn't go anywhere. >> after hours -- spring is CISCO SYSTEMS, down 4%. Disappointing guidance. Now jeffrey, mr. Chambers, >> cutting jobs. >> really? Almost impossible to beat that
Fast Money
2/4/2009 5:08 PM
Fast Money
>> maybe not as much as you without actually -- you can't say there was -- I mean, maybe he did say it. There's evidence there was actual growth in those countries. Two CISCO SYSTEMS we go. Jim goldman on the conference what do you say, mr. Goldman? Dylan on that conference call, talk about a spoon full of sugar helping that medicine go down. You know, the company beats the numbers for second quarter but
Fast Money
2/4/2009 5:00 PM
Fast Money
On the republican stimulus plan. Its boost to the marketplace. He will get a chance to tell us why he thinks that plan is so much better. First to matters of after hours CISCO SYSTEMS crossing the tape. Their numbers better than expected by a couple of pennies. They say they think they can maintain 12% to 17% revenue growth on the year. The stock basically is doing little after hours.
Fox Business Bulls & Bears
2/4/2009 4:35 PM
Fox Business Bulls & Bears
Economic slowdown doesn't persist beyond the year 2010. Visa shares are higher in the after hours. CISCO SYSTEMS also reporting after the bell. Shares are up. They beat the street by a couple of pennies. Revenue higher than expected.
Closing Bell
2/4/2009 3:59 PM
Closing Bell
>>> karl is with us exclusively on fast money and CISCO SYSTEMS earnings minutes away as the bell rings.
Power Lunch
2/4/2009 12:02 PM
Power Lunch
The gains from large cap tech at least 2.5% from the likes of microsoft, rim, yahoo!, oracle, and google. A critical moment will come after the bell when CISCO SYSTEMS reports their earnings. Wall street always looks forward to that. Cisco's shares are up 2%. Costco said earnings in the
Squawk On The Street
2/4/2009 9:08 AM
Squawk On The Street
Lifetime. Tradertalk.Cnbc.Com. >> futures looking flat over here at the nasdaq. The biggest activity or the most important will come after the close today when CISCO SYSTEMS reports its earnings. We always look out for not only the numbers but the commentary from john chambers. He has a tendency to move the market with his outlook for tech. Costco is another big story
Fast Money
2/3/2009 5:56 PM
Fast Money
And he's going to say bad things in the conference call. >> no to your answer, question. >> karen finerman? >> oih. >> and mr. Najarian? >> CISCO SYSTEMS, you heard the guy, brent, say that he thinks 15 holds and to buy there, sell puts to buy it lower. >> you guys around the horn like the republican suggestions for stimulus? I know that you do, karen.
View All Cisco Systems, Inc. Comments

Key Fundamentals

CSCO - Cisco Systems, Incorporated Fundamentals
Price (2/5/2009) $16.35
Volume (2/5/2009) 110.9 Million
10 Day Average Volume 64.5 Million
13 Week Price Range $14.20 - $17.98
52 Week Price Range $11.78 - $27.72
LTM Revenue $39.6 Billion
 
Shares Outstanding (07/2008) 5.9 Billion
Market Capitalization $95.7 Billion
Shares Held By Institutions 4.4 Billion
Institutional Holders 2,010
% Shares Held By Institutions 74.30%
Earnings Per Share (EPS) $1.31
P/E Ratio 13.00
Book Value Per Share $5.98
 
Gross Margin 66.90%
Quarterly Dividend 0.00
Dividend Yield 0.00%
Beta 1.28
Fiscal Year Ends July