Cisco (CSCO) is often thought of as a slow, sleepy tech giant. But CSCO stock has gained 34% over the last 12 months, doubling the broader Nasdaq‘s 16% climb.
With shares sitting at a multi-year high, however, the question is whether or not now is a good time to buy CSCO stock. Analysts, though, certainly seem optimistic that Cisco stock will keep chugging. Let’s take a look at three reasons why.
Reason #1 to Buy Cisco Stock: Earnings Momentum
The most recent catalyst for Cisco stock’s upwards momentum was a solid earnings report. Cisco earnings tallied 53 cents per share in the most recent quarter after adjusting for one-time items — two pennies better than what Wall Street was expecting. Revenue increased from $11.16 billion to $11.94 billion, besting expectations of $11.8 billion and continuing a strong run for Cisco, as the company has beat earnings for four straight quarters.
Reason#2 to Buy Cisco Stock: Dividend Payment
Perhaps even better than the earnings beat, though, was Cisco’s announcement of an even juicier dividend. InvestorPlace reported the bump in its weekly round-up of companies increasing payments, laying out all the details:
“Cisco boosted the connection on its dividend by 10.5% to 21 cents per share from 19 cents. The better payout will begin on Apr. 22 to shareholders of record as of Apr. 2. The stock becomes ex-dividend on March 31. Cisco’s new dividend yield is 2.86%.”
Reason #3 to Buy Cisco Stock: IT Recovery
Perhaps best of all, analysts don’t think Cisco stock’s momentum will slow down. The median target from analysts is only a couple dollars higher than the current pricetag, but James Kelleher of Argus thinks shares could hit $36 — a 20% increase over current prices. He pointed to the aforementioned earnings report as well as the stock’s valuation vs. the broader market.
Bernstein Research is similarly optimistic about Cisco, celebrating broader market mega-trends as opposed to indulging in backwards-looking earnings applause. The general logic behind Bernstein’s bull case is as easy as one, two, three, cited below:
- Our review of the top 600 IT companies suggest IT spending continues to recover, with the fifth successive quarter of consecutive growth in dollars …
- Networking is strongly positioned in this IT spending recovery and growing faster than average …
- [Cisco] is able to defend strongly its share of spending.
The analyst optimism is especially notable because of the lingering concerns about Cisco stock in the wake of software-defined networking’s rise. But Bernstein shrugged off the worry — calling software-defined networking “yet another buzzword we find meangingless” — just as Cisco’s CEO John Chambers did. A recent Bloomberg piece reports Chambers’ comments:
“Everyone said SDN is going to kick your tail and is basically going to put you out of business and your margins are going to go to 45%, but our margins are increasing.
“Other networking equipment companies wouldn’t be able to compete with Cisco, given its ability to combine its switches with its servers, software and services.”
Of course, its Chambers’ job to be optimistic and talk up his company’s prospects — but with the earnings numbers and analyst optimism to back it up, it seems safe to say that Cisco stock is offering investors old-school momentum plus a steady dividend.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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