Cisco Stock: In the Cybersecurity ‘Sweet Spot’

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The growing prevalence of hacking, identity theft and data espionage is generating huge demand for cybersecurity — which is great news for Cisco stock.

Cisco blue-chip stocks CSCOThe rising threat of cyber crime is being underscored this week as the leaders of the United States and China — the world’s No. 1 and No 2 economies, respectively — conduct a summit meeting to discuss China’s alleged hacking of American corporate and military computers.

This global climate of cyber-insecurity spells long-term demand for Cisco Systems (CSCO), a leader in networking technologies that protect the extended frontiers of “virtual” organizations.

With a market cap of $128 billion, CSCO dominates the global market for networking equipment as well as cybersecurity. The company’s entrenched position in these arenas has given it resilience during the ups and downs of the economic cycle. Now that the global economy is recovering, Cisco should see greater demand for its products and services, especially as cash-rich corporations make belated investments in their IT infrastructures.

Cisco is a major developer and marketer of Internet-based networking products; the company’s routers and switches are ubiquitous in offices, classrooms and government agencies around the planet.

CSCO also has carved out a specialty in protecting these networks, which are increasingly vulnerable to hacking from foreign governments as well as organized crime. Cisco’s security products provide firewall, web and email intrusion prevention, without impeding mobility or interactivity.

According to the latest figures from research firm IDC, Cisco led the overall security appliance market with an 18.4% share of factory revenue in the second quarter of 2014, for year-over-year growth of 19.7%. IDC also reported that, in the second quarter, worldwide factory revenue of the security appliance market grew 7.3% year over year to $2.2 billion.

Cisco Stock’s Auspicious Performance

After struggling in recent quarters due to flagging economies, especially in Europe, Cisco stock is showing signs of operational strength and is now poised to benefit from these secular trends.

Yesterday, the company reported earnings for the first quarter of its fiscal 2015, with Cisco stock beating Wall Street’s expectations for both revenue and earnings.

First-quarter earnings came in at $1.8 billion, for earnings of 54 cents per share of Cisco stock, compared to 53 cents in the same period a year ago. Revenue reached $12.25 billion compared to $12.09 billion in the same year-ago period, for a year-over-year increase of 1%.

Cisco stock’s 12-month trailing price-to-earnings (P/E) ratio is 16.8 — roughly in line with the trailing P/E of its sector of networking and communication devices, making Cisco stock fairly price in light of its growth prospects.

Case in point: CSCO’s main rival, Check Point Software Technologies (CHKP) is considerably smaller (market cap: $14.2 billion), and trades at a higher trailing P/E of 22.7, making Cisco the clear choice as the best play on global interconnectedness and its concomitant vulnerabilities.

Considering the challenging environment still faced in key markets overseas, CSCO’s first-quarter performance is an auspicious sign for investors. Boasting a strong balance sheet and a lock on proprietary technology, Cisco stock offers the best of both worlds: the market-beating promise of a tech innovator combined with rock solid market dominance.

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As of this writing, John Persinos did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/cisco-stock/.

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