Why Cisco is a Good Buy

The shares of Cisco Systems (NASDAQ: CSCO), which are currently trading at their 52-week highs have edged higher by nearly 40 percent from approximately $22 to 31 since analysts from TheStreet have rated the company’s stock a Buy on February 9.

Last May 17, with the tech giant’s shares changing hands at approximately $26, the charts indicated a greater rally. The outcome has been a nearly 20 percent profit. The stock of Cisco has rewarded shareholders not only from the increased earnings and revenue of the multinational tech company, but also its constantly improving profit metrics, indicating that the company’s pricing power increases as its market share surges.

After the closing bell on August 17, the San Jose, California-based tech titan will post fourth quarter results for fiscal year 2016.

In a recent note by Jim Cramer and co-manager Jack Mohr stated that in terms of the earnings of Cisco, they “will be looking for an update on the company’s ongoing shift toward a subscription-type model, focusing on deferred revenue, fueling growth in its Cloud, Collaboration and Security businesses. We recognize that the Switching & Routing business continues to face competitive headwinds, so we will be listening for management’s commentary on the direction moving forward. We also will be eagerly awaiting management’s thoughts on recent and future M&A.”

During the third quarter, the gross margin of the multinational tech corporation’s hit 65.2 percent, surpassing its own guidance. Moreover, it edged higher by 100 basis points from the first quarter and 60 basis points on a year-over-year basis. Aside from extending the streak of earnings beats to 13 quarters, the robust margins will aid in ramping up the cash of Cisco, which currently stands at $63.5 billion. Cisco’s cash will enable the company to give future dividend payments and buy back millions of its own shares.

Regardless of the dominant performance of the CSCO stock, the company still provides tons of value for market players who wanted to Hold it for the long term. Cisco’s stock, which is trading higher by 15 percent on a year-to-date basis and 7 percent over the past year, still has an attractive price at a forward price-to-earnings multiple of 12—5 points below that of the S&P 500.

This just goes to show that if the tech giant was priced at the same level with the rest of the market, it would be presently valued at approximately $41. Moreover, this implies that the CSCO stock is not as risky as the tech companies that are changing hands at their 52-week highs. In addition, Cisco pays a quarterly dividend of 26 cents, which yields 3.37 percent yearly. That figure is 1.37 percentage points higher than the 2% average yield paid out by companies under the S&P 500.

All in all, while Cisco has outperformed the 8 percent rally in the iShares North American Tech-Software ETF and the S&P 500’s 7.15 percent surge, you would be pressured to look for a better value large-cap company on the market that pays a yield that is just as good as that of the multinational tech company.

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