Think all large-cap artificial intelligence hardware companies are grossly overvalued? Think again, and look at Cisco Systems (NASDAQ:CSCO) stock.
Cisco is a networking equipment manufacturer that probably deserves your attention in 2023. CSCO stock isn’t a perfect holding for everyone, and it gets a “B” grade. Yet, it should appeal to some income-focused, value-oriented and momentum-seeking financial traders.
As we’ll discover, Cisco disappointed some investors with its soft forward sales guidance. So, don’t expect Cisco’s market capitalization to grow exponentially.
Instead, look to Cisco for a reasonably valued tech business with an AI connection, something that you might have had difficulty finding in today’s market.
Could CSCO Stock Be the Market’s Hidden AI Play?
First things first. Wall Street wasn’t impressed with Cisco’s revenue guidance for fiscal 2024. Specifically, the company expects to generate $57 billion to $58.2 billion in revenue during the fiscal year. Analysts, meanwhile, had called for $58.38 billion in revenue.
For that reason, CSCO stock earns a “B” grade and it might disappoint some investors if they’re looking for powerful sales growth. On the other hand, Cisco grew its revenue 16% year over year and its diluted EPS 46% year over year in the fourth quarter of fiscal 2024.
So, no one can claim that Cisco isn’t showing any growth at all. The company has an AI angle that some financial traders might not have noticed. In particular, Cisco can provide best-in-class network equipment to help power AI applications.
Reportedly, Cisco has already garnered $500 million worth of AI-related orders. However, KeyBanc analyst Thomas Blakey seems to suggest that investors will need to patiently wait for Cisco to fully benefit from AI market growth.
Cisco recently “appeared confident on Ethernet-based AI (Silicon One) opportunities. . . but sees demand inflection more likely in FY25 [full-year 2025], similar to peers,” Blakey observed.
Cisco Offers Growth, Value and Yield
Cisco should show AI-product growth, but it will take some time. To that point, Chief Financial Officer Scott Herren reportedly expressed to Barron’s that “AI-related business will meaningfully show up in the company’s financial results by the end of fiscal 2024 and into fiscal 2025.”
Financial traders certainly can’t dispute the growth of CSCO stock, which surged from $45 in May to the mid-$50s recently.
Don’t assume that Cisco is over-valued, though. Blakey noted Cisco traded at roughly 14x the company’s forward earnings, and Yahoo! Finance lists the company’s trailing 12-month price-to-earnings ratio as 18.46x.
That’s pretty reasonable for a large-cap tech company in 2023, especially if it has an AI connection. And for income-focused investors, Cisco offers a forward annual dividend yield of 2.72%, which handily beats the sector average dividend yield of 1.025%.
Thus, CSCO stock provides a combination of potential growth, relatively attractive value and enticing dividends, especially for a tech stock. That’s why a wide variety of investors might choose to add Cisco to their watch lists in 2023.
CSCO Stock May Be Worthy of a Small Allocation
If you’re seeking a tech name with explosive projected sales growth, Cisco probably won’t fit the bill. As we’ve shown today, Cisco has a notable AI angle and the company rewards its loyal investors with decent dividend distributions.
Chances are, it’s worth your time to conduct your due diligence on Cisco as a potentially investable business. With that in mind, CSCO stock earns a “B” grade and may deserve a small share position in your portfolio.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place