-0.69%
-0.80%
The Cisco Kid reports their fiscal q2 ’12 after the bell Wednesday with Street consensus looking for $0.43 in eps on $11.23 bl in revenues for expected y/y growth of 16% in eps and 8% in revenues.
CSCO has had a nice bounce since hitting a multi-year low of $13.30 in August 2011.
The rebound in enterprise IT spend and a gross margin rebound for CSCO have led to a nice recovery in the shares. CSCO’s product gross margin has fallen the past few years from 65% area to just 61.3% the last quarter, while the service margin has stayed pretty stable at 66% - 67%. It looks like product gross margin has begun to stabilize which has helped the stock. In addition, a reduction in headcount of 8,000 jobs didnt hurt.
Foray’s into the consumer biz via set-top boxes have been a dud, and given the spending/budget cuts, the public sector or government aspect of CSCO’s business hasnt fared well either, although in q4 ’11, public sector orders rose 10%.
On CSCO’s monthly chart, a big area of resistance looms overhead at $20.83 and $21.10 which is the site of the 50 and 200 month moving averages. Id rather wait and see the stock recover that level, or continue to wait for a pullback, before going long.
Cisco isnt all that expensive in terms of valuation, trading at 10(x) cash flow and 11(x) fiscal 2012 eps currently at $1.77. Estimates have been rather stable the last 12 months, so there is little current upward pressure in 2012 and 2013 eps estimates.
We never repo’ed the stock after selling at $17 - $18 last year. Cisco is now a secular mid-single-digit grower given its market cap, so at some point id would expect it to pull back to the mid high teens. However a trade above $21 on very heavy volume, and the stock will have broken out. Morningstar has a fair value estimate on CSCO of $26 per share so the current price is a 25% discount to Morningstar’s fair value estimate.
(long one core CSCO position - one account)
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