Cisco Systems a networking technology leader is strategically repositioning itself through intelligent acquisitions, technological innovation, and a decisive shift toward software and AI-powered solutions. By exploiting its strong financial position and focusing on high-growth sectors, the company is creating a robust platform for future technological leadership.
The company’s disciplined approach to workforce management, combined with significant investments in cybersecurity and AI technologies, positions it to capitalize on emerging market opportunities and deliver long-term shareholder value.
The stock trades at 16.3 times the company’s forward earnings forecast.
CISCO SYSTEMS INC. (Nasdaq symbol CSCO; www.cisco.com) is a leading maker of products that link and manage computer networks.
In 2015, the company began cutting its reliance on cyclical computer hardware products by expanding its software business. That lets it offer its customers a better combination of products and services. Cisco also earns steady revenue streams from selling its software as an ongoing service.
Then in March 2024, Cisco completed its acquisition of Splunk Inc. (Nasdaq symbol SPLK) for $28 billion. The firm makes software that lets organizations analyze their data in real time. The purchase will enhance Cisco’s current cybersecurity software business. Their combined expertise in AI will also help clients better anticipate and prevent cyberattacks.
In March 2024, Cisco completed its acquisition of Splunk Inc. (Nasdaq symbol SPLK) for $28 billion. The firm makes software that lets organizations analyze their data in real time. The purchase will enhance Cisco’s current cybersecurity software business. Their combined expertise in AI will also help clients better anticipate and prevent cyberattacks.
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Despite that purchase, the company’s revenue in its fiscal 2025 first quarter, ended October 26, 2024, fell 5.6%, to $13.84 billion from $14.67 billion a year earlier. Even so, that beat the consensus forecast of $13.78 billion.
The lower revenue is mainly due to a 9.2% drop in sales of new equipment (73% of total revenue). However, demand for software and services (27%) rose 5.6%.
Earnings in the quarter, excluding unusual items, declined 18.0%, to $0.91 a share (or a total of $3.67 billion) from $1.11 a share (or $4.53 billion). That still topped the $0.87 consensus estimate.
Cisco continues to shift its operations towards a subscription model instead of one-time sales. That gives its more-predictable revenue streams. In the latest quarter, annualized recurring revenue grew 22% to $29.9 billion.
The company holds cash of $18.7 billion.
Dividend Stocks: Workforce cuts redirect resources to AI and innovative software at Cisco
Cisco is cutting 7% of its workforce under a plan to free up resources for investment in faster-growing areas, including adding AI technologies. The company expects severance payments and other costs will total up to $1 billion.
The company continues to see strong demand for products related to artificial intelligence (AI). Orders related to AI totalled $300 million in the latest quarter and should reach $1.0 billion for all of fiscal 2025.
Investors can expect Cisco to earn $3.58 a share in fiscal 2025, and the stock trades at 16.3 times that estimate. That’s an attractive P/E as the company spends a high 15% of its revenue on research.
With the April 2024 payment, Cisco raised your quarterly dividend by 2.6%, to $0.40 a share from $0.39. The new annual rate of $1.60 yields a solid 2.8%.
Recommendation in Dividend Advisor: Cisco Systems Inc. is a buy.
