Cisco Bottoms With Institutional Support
Shares of Cisco Systems (NASDAQ: CSCO) have been moving sideways over the past year but one thing is clear. There is a floor in share prices near the $53 level that has an increasing amount of institutional support. The institutions have been aggressively buying the stock over the past year, having netted $7.25 billion worth of the stock or about 3.16% of the market cap. That activity has their holdings up to 71% and growing based on the preliminary Q1 data and our outlook for the stock.
The analysts are still on the fence, however, but we think that trend will change over the next few quarters. The Pricetargets.com consensus is a firm Hold verging on Buy, already, and the company is outperforming the expectations. The current consensus price target is projecting about 13% of upside for the stock with the most recent three commentaries including price targets above the consensus.
Cisco Systems Transformation Continues To Bear Fruit
Cisco Systems has been working on a business transformation over the past few years that relies on services and recurring revenue in addition to its core product line. The efforts, as well as underlying strength in core markets, resulted in $12.7 billion in revenue for the FQ2 period of 2022. This is up 5.8% from the previous year and beat the consensus estimates by 25 basis points with strength in both operating segments. The company reports ARR up 21% and the 3rd consecutive quarter of product sales growth above 30% with growing backlogs and strong demand across all end markets.
"We continue to see incredibly strong demand across our portfolio, emphasizing the criticality and relevance of Cisco's innovation," said Chuck Robbins, chair and CEO of Cisco. "Our robust order strength, record backlog and double-digit growth in annual recurring revenue position us well to deliver growth."
Moving down the report, the company logged an increase in the margin with net income up 17% YOY and EPS up 18%. On the bottom line, the GAAP EPS of $0.84 also beat the consensus by $0.16 and there is strength in the guidance as well. The company is looking for revenue to grow 5.5% to 6.5% for the full fiscal year with EPS in the range of $3.41 to $3.46 compared to the analyst's consensus of $3.42.
Cisco Systems Increases Its Capital Return Program
Cisco Systems had an attractive capital return program before the Q2 release and it is more attractive now. We think it will be a significant factor in regards to the institutional activity, as well. The company increased its dividend by 3%, a small amount, to 2.8%, which is not a small amount, and increased the repurchase allotment by $15 billion. That brings the total left under the now current authorization to $18 billion or about 8% of the market cap.
The Technical Outlook: Cisco Systems Confirms Support
Shares of Cisco Systems jumped more than 4.0% in the wake of the earnings release and are confirming support at the $54 level. The move looks like it could go higher but there is resistance at the short-term moving average. If price action can get above the short-term moving average we see it moving up to retest resistance near $60 and then possibly $62 and $64. If, however, resistance at the short-term moving average caps upward movement this stock will likely remain range-bound near current levels until the next earnings cycle or other news is available.
Companies in This Article:
