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Cisco Systems stock is looking cheap, this fund manager says

Cisco Systems

Cisco SystemsAmid the recent market carnage, investors with a bit of cash to spend have a multitude of options to pick up stocks on the cheap, and on that note, you might want to look at Cisco Systems (Cisco Systems Stock Quote, Chart, News NASDAQ:CSCO) which is currently trading at multi-year lows. Alex Ruus of Arrow Capital Management says the company is too good to be down for long.

“Cisco is a fantastic networking equipment company and it’s poised to benefit from the continued build-out of advanced Internet and telephone systems,” says Ruus, portfolio manager for Arrow, who appeared on BNN Bloomberg Tuesday.

‘A couple of disappointing quarters and that's why the stock sold off, plus the recent market selloff. But this company generates a huge amount of free cash flow and so at these levels, to us, it's one of the stocks that on weakness we’d be buying here,” said Ruus.

Cisco’s slide began last summer when management delivered fourth quarter earnings that showed revenue up six per cent year-over-year but nonetheless featured lower-than-expected guidance for the upcoming fiscal year.

Pointing to softer macroeconomic conditions resulting from the US-China trade war as a cause for the tempered forecast, Cisco predicted flat to two per cent revenue growth for the first quarter of its fiscal 2020.

The Q1 2020 report came in November and featured top and bottom line beats but once again contained muted expectations going forward, this time calling for a three-to-five per cent drop in revenue over the upcoming second quarter.

Then, the Q2, delivered in mid-February, was basically a repeat of the Q1, with modest revenue and earnings beats compared to analysts’ forecasts and a further revenue drop for the next quarter of between 1.5 and 3.5 per cent. For the second quarter, Cisco reported revenue of $12.01 billion, down four per cent from a year earlier, and earnings of $0.77 per share.

Analysts had been predicting revenue of $11.98 billion and earnings of $0.76 per share. (All figures in US dollars.)

Accordingly, Cisco’s share price took a hit with each quarterly report, and the stock has now lost 27 per cent since August of last year. For 2020, CSCO is currently down 16 per cent.

Cisco sports a nice dividend currently at a yield of 3.5 per cent and one which management is supporting, as seen in its February quarterly report which contained a $0.01 per share top up in dividend to $0.36 per share, representing a three per cent increase.

Another vote of confidence came from management’s continued share buy-back program, which over the Q2 2020 saw the company absorb 18 million shares totalling $840.8 million. Altogether, Cisco’s share buy-back has still $11.8 billion left to go, according to management.

“We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions,” said Kelly Kramer, CFO, in a February press release. “Our increased dividend shows confidence in the strength of our ongoing cash flows and demonstrates our commitment to shareholder return.”

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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