Cisco Systems, Inc. (CSCO) reported better-than-expected fiscal 2023 first-quarter results. The company surpassed Wall Street’s top and bottom-line estimates. CSCO’s revenue of $13.60 billion increased 6% year-over-year and was ahead of Wall Street’s estimate of $13.30 billion. Also, its non-GAAP EPS was $0.86, up 5% year-over-year, beating the consensus estimate of $0.84.
“Our fiscal 2023 is off to a good start as we delivered the largest quarterly revenue and second highest quarterly non-GAAP earnings per share in our history. These results demonstrate the relevance of our strategy, our differentiated innovation, and our unique position to help our customers become more resilient,” said Chuck Robbins, CSCO’s chair and CEO.
CSCO’s annualized recurring revenue (ARR) increased 7% year-over-year to $23.20 billion, while its product ARR grew 12% year-over-year. Its remaining performance obligations (RPO) rose 3% from the year-ago value to $30.90 billion, with product RPO growing 5%. This, coupled with the company’s significant backlog and easing supply chain constraints, provides great visibility and supports its raised full-year guidance.
For the fiscal year 2023, the company increased its guidance for revenue growth from the previously expected range of 4%-6% to 4.5%-6.5% year-over-year. CSCO has also raised its non-GAAP EPS guidance by 4.5%-6.5% year-over-year to $3.51-$3.58. For the second quarter, the company expects its revenue to grow between 4.5% and 6.5% year-over-year and its non-GAAP EPS to arrive between $0.84 and $0.86.
The company has raised its dividends for 11 consecutive years. It pays a $1.52 per share dividend annually, which translates to an attractive 3.16% yield on the current share price. Its four-year dividend yield is 2.98%. The company’s dividend payouts have grown at CAGRs of 2.8% and 5.6% over the past three and five years, respectively.
Tech stocks witnessed a massive sell-off in 2022 amid rising interest rates and an economic slowdown, causing the tech-heavy Nasdaq Composite to decline more than 23% over the past year. Despite an uncertain macroeconomic environment, shares of CSCO have gained 10.1% over the past six months.
Furthermore, Wall Street analysts expect the stock to hit $54.70 in the near term, indicating a potential upside of 16.6%.
Here’s what could influence CSCO’s performance in the upcoming months:
Positive Recent Developments
On November 30, 2022, Cisco AppDynamics launched new AppDynamics Cloud capabilities that will allow organizations to achieve observability over cloud-native applications correlated with business context across the entire IT estate. The new capabilities will initially support cloud-native applications and digital services on Amazon Web Services (AWS)
On October 12, CSCO and software giant Microsoft Corporation (MSFT) announced their partnership where CSCO and MSFT Teams will be able to run natively on CSCO Room and Desk devices, and CSCO will be a partner in the Certified for MSFT Teams program in the first half of 2023. Through this partnership, CSCO is helping drive interoperability and is meeting its customers’ needs.
Robust Financials
CSCO’s total revenue increased 5.7% year-over-year to $13.63 billion for the fiscal 2023 first quarter ended October 29, 2022. The company’s product revenue rose 7.5% from the year-ago value to $10.25 billion. Its gross margin was $8.35 billion, up 3.6% year-over-year. Its non-GAAP operating income grew 1.1% year-over-year to $4.33 billion.
Furthermore, the company’s non-GAAP net income increased 2.1% year-over-year to $3.55 billion, and its non-GAAP EPS came in at $0.86, up 4.9% year-over-year.
Favorable Analyst Estimates
Analysts expect CSCO’s revenue for the fiscal year (ending June 2023) to come in at $54.50 billion, indicating an increase of 5.7% year-over-year. The consensus EPS estimate of $3.55 for the ongoing year indicates a 5.6% year-over-year increase. Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the trailing four quarters.
Also, the company’s revenue and EPS for the next fiscal year are expected to grow 4.1% and 8.1% from the previous year to $56.71 billion and $3.84, respectively.
High Profitability
In terms of the trailing-12-month gross profit margin, CSCO’s 62.23% is 25.7% higher than the 49.53% industry average. And its 30.34% trailing-12-month EBITDA margin is 162.1% higher than the industry average of 11.58%. Likewise, the stock’s 22.00% trailing-12-month net income margin is 582.7% higher than the industry average of 3.22%.
Furthermore, CSCO’s trailing-12-month ROCE, ROTC, and ROTA of 27.72%, 17.02%, and 12.36% compare to the industry averages of 4.75%, 3.21%, and 1.52%, respectively.
POWR Ratings Show Promise
CSCO has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CSCO has an A grade for Quality, consistent with its high profitability metrics. In addition, the stock has a B grade for Stability. Its 0.82 beta justifies its Stability grade.
CSCO is ranked #4 out of 48 stocks in the B-rated Technology – Communication/Networking industry. Click here to access CSCO’s Growth, Value, Momentum, and Sentiment ratings.
Bottom Line
CSCO surpassed Wall Street’s revenue and earnings estimates in the first quarter. Moreover, the company has raised its full-year 2023 guidance on the back of its significant backlog, strong ARR and RPO, and easing supply situation. The company is well-positioned to benefit from trends toward hybrid work and cloud environments.
Given CSCO’s robust financials, optimistic analyst estimates, reliable dividend payments, and high profitability, it could be wise to buy this tech stock now.
How Does Cisco Systems, Inc. (CSCO) Stack up Against Its Peers?
CSCO has an overall POWR Rating of A. Check out these other stocks within the Technology – Communication/Networking industry with an A (Strong Buy) rating: Extreme Networks, Inc. (EXTR), AudioCodes Ltd. (AUDC), and PC-Tel, Inc. (PCTI).
CSCO shares fell $0.09 (-0.19%) in premarket trading Thursday. Year-to-date, CSCO has declined -0.77%, versus a 2.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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