CISCO SYSTEMS INC. $27 (Nasdaq symbol CSCO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.1 billion; Market cap: $137.7 billion; Price-to-sales ratio: 3.0; Dividend yield 2.8%; TSINetwork Rating: Average; www.cisco.com) is a leading maker of hardware and software that links and manages computer networks. Its hardware includes routers, local area network (LAN) and asynchronous transfer mode (ATM) switches, and dial-up access servers.
In its fiscal 2015 first quarter, which ended October 31, 2014, Cisco’s revenue rose 1.3%, to $12.2 billion from $12.1 billion a year earlier.
Without unusual items, it earned $2.8 billion, down 2.3% from $2.9 billion. Cisco spent $1.0 billion on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share gained 1.9%, to $0.54 from $0.53.
Major U.S. phone companies are spending less on network equipment due to the uncertainty over net neutrality. That’s the idea that all Internet traffic should be treated the same, and that companies shouldn’t be able to pay extra to speed up their Web traffic at the expense of someone else’s.
As a result, Cisco now expects its revenue to rise 4% to 7% in the second quarter. That’s below the consensus forecast of 8% growth.
But the company continues to spend a high 12.9% of its revenue on research. The resulting products should fuel its earnings, particularly as more businesses switch to cloud computing for data storage.
The company will probably earn $2.14 a share in the fiscal year ending July 31, 2015. The stock trades at just 12.6 times that estimate. The $0.76 dividend yields 2.8%.
Cisco Systems is a buy.
