Cisco Systems Falls Into The Buy Zone

Key Points

• Cisco fell on solid results, but the market stepped in to buy this blue-chip stock on the dip. 
• Cisco offers high yield and value for income investors. 
• Concern about sluggish results in 2024 could weigh on the price action but capital returns are safe. 

Shares of Cisco Systems NASDAQ: CSCO fell 3% following its Q3 report sending shares into the buy zone. The drop was driven by fears centered on a slowing order book that points to sluggish growth in fiscal 2024. The salient point is that growth is on the table for fiscal 2024, and value-seeking income investors looking to buy blue-chip tech companies with high-yielding dividends are buying the name. 

The analysts are responsible for the decline. They began resetting their targets with an expectation for industry normalization in 2024. Analysts from 3 firms issued commentary immediately after the release, including 2 price target reductions to a level below the consensus estimate. However, the takeaway from the data is more bullish than it may appear due to the trend in sentiment. 

22 analysts rate this stock a Moderate Buy with a price target roughly 18% above the 30-day moving average. That target has been within a tight range over the past 3 months, aided by the single price target increase that’s out post-release. That target is $64, set by Raymond James; a move to that level would put the stock at a new 1-year high and near record highs. 

Cisco Has Strong Quarter, Guides Higher 

Cisco had a strong quarter and was able to guide the market higher. The company reported $14.57 billion in revenue for a gain of 13.5% compared to last year, driven by gains in software and subscription sales. The revenue beat the analysts' consensus but was offset by weak order growth, which fell by 22%. Software led with growth of 18%, followed by a 17% increase in subscriptions with relative strength across all geographies. ARR and RPO, indicators of future strength, grew at a slower 6% pace. 

Magin was better than expected. The company reported an adjusted gross margin of 65.2%, up 0.1% compared to last year, driving an 11% gain in adjusted operating income. The adjusted EPS came in at $1.00 and $0.03 better than expected, which is good news for income investors. Growth may be slowing, but the 3.25% dividend yield remains safe, and the outlook for distribution growth is robust. 

Guidance is favorable. The company raised its guidance for Q4 and the FY, with revenue growth in Q4 expected to accelerate to 14% at least. Quarterly EPS is expected to be $1.05 to $1.07 compared to the Marketbeat.com consensus of $1.04 to add to Q3 strength. 

Cisco Systems: Value And Yield In A Blue-Chip Tech Stock 

Cisco Systems is a blue-chip quality company offering value and yield in the tech sector. The business is central to networking despite losing market share in some areas. The shift to AI will underpin business over the long term and may aid growth soon. Regardless, trading at 12.5X earnings and paying 3.25%, is a value for income investors, and it repurchases shares. The company bought back $1.3 billion in shares in Q3 and has $12.2 billion, or about 6% of the market cap, left under the current authorization. 

The price action in Cisco is struggling a little, but the bulls have retained market control. The stock is well off the early lows and could regain the 30-day moving average in the next few days. The question is whether the market will move above $50, which is questionable. The market could remain range bound until later in the year.