Cisco Systems Inc.

 

Cisco is the networking equipment juggernaut, the proverbial 800 pound gorilla in the room.  Much has been written about the imminent death of Cisco and while the threats are real, Cisco has strong relationships with its customers and it is meeting those threats head on.  The emergence of Network Virtualization has resulted in some network functions being moved to servers instead of on purpose-built routers and switches.  Cisco is also participating in this development.  Cisco also designs custom chips and software for its network equipment, unified network systems,  network management, security, and servers.  

Ests      2Q20   3Q20   FY20    FY21

Revs    12b      12.6     51        52.5

EPS      .76       .80       3.24     3.40

EPS gr  4%       2.6%    +4.5%  5%

 

P=48.46, div=1.44, yield=2.9%, Solid balance sheet w 12.5bn net cash ($2.96/sh) but doesn’t factor 18.7bn def revs or 13.1bn NWC, TTM EPS=3.19, P/E=15X, FY20 P/E=15X

 

2Q20   .77 vs .73 +5%, est .76 down from .79

  • Feb 12, 2020, P=49.03, TTM EPS=3.23, P/E=15X, FY21 P/E=14X

  • Raised dividend 3% to 1.44, 2.9% yield

  • Revs -4% to 12bn, GM 66.4% vs 64.1%, OM 33.7% vs 32.1%, OpInc +1%

  • Product -6% to 8.7bn, Services +5% to 3.3bn, Americas -5% to 7bn, EMEA -3% to 3.1bn, APJC -1% to 1.9bn, Software subscriptions 72% of Software revs vs 65%

  • Deferred Revs 18.7bn, Remaining Purchase Obligations 24.9bn

  • 3Q Guidance: Revs -3.5% to -1.5% (est -3.1% to 12.6bn), EPS .79-.81 (+1% to +4%, est .80)

  • In December announced their first-ever single unified silicon architecture

  • Made significant progress integrating automation, analytics, and security in addition to shifting to subscription model

  • In absolute terms, results are soft although profitability continues to improve modestly, valuation of 15X earnings isn’t horrible (better than the market), mgmt maintains customers are lengthening decision cycles but secular growth opportunities from 5G, Wifi-6, 400G, and continued shift to cloud still remain.  

1Q20   .84 vs .75 +12%, est .81

  • Nov13, 2019, P=48.46, TTM EPS=3.19, P/E=15X, FY20 P/E=15X

  • Revs ex SPVSS +2% to 12.2bn, GM 65.9% vs 64.2%, OM 33.6% vs 31.9%, OpInc +6%

  • Product +1% to 9.9bn, Services +4% to 3.3bn, Americas +4% to 8bn, EMEA +4% to 3.3bn, APJC -8% to 1.9bn, all business groups up except routing due to service provider.

  • Deferred Revs 18.6bn, Remaining Purchase Obligations 24.9bn

  • Product orders -4%, Americas and EMEA -3%, APJC -5%, EM -13% with BRICS plus Mexico -26%, Public Sector +6%, Enterprise and Commercial -5%, Service Provider -13% 

  • China -31%, acceleration from 4Q -26%

  • Mgmt indicated conversion rates lower than normal, some deals closed smaller than initially proposed, 

  • 2Q Guidance: Revs -5% to -3%, est +3%, EPS .75-.77 (+3-5%, est .79)

  • Seeing weakness expand from Service Provider in Emerging Markets to enterprise and commercial.  

  • Guidance weak, stock off ~5% after hours.

4Q19   .83 vs .70 +18.6%, est .81, FY19 EPS +19% to 3.10

  • Aug 14, 2019, P=50.16, TTM EPS=3.10, P/E=16X, FY20 P/E=15X

  • Revs +6% ex SPVSS to 13.4bn, GM 65.5% vs 63.2%, OM 32.6% vs 31.2%, OpInc +11% to 3.4bn

  • Product +7% to 10.1bn, Service +4% to 3.3bn, Americas +9% to 8.1bn, EMEA +7% to 3.3bn, APJC -4% to 2bn

  • Software subscriptions now 70% of software revs vs 58% last year

  • Deferred Revs -6% to 18.5bn, +6% q/q (seasonality?), Remaining Purchase Obligations (RPO) +10% q/q to 25.3bn.  

  • 1Q20 Guidance, Revs flat to +2% (est +2%), EPS .80-.82, (+7-9%, est .83)

  • Guidance factors tough y/y comparison, continued challenges in Service Provider (Americas the same, EU positive, China further weakening, India tough comps vs last year), orders ex SVP were up mid single digits, July saw some shifts in macro environment. While China is small part of business (<3%), not being invited to bid on state-owned enterprise business (broader implications beyond CSCO)

  • Stock selling off ~8%, while guidance might be a bit conservative, still not horrible, P/E of 16X earnings is a discount to the market, seems like a reasonable valuation despite deceleration in growth.  

  • Csco maintains they are “the only company providing an integrated end-to-end security architecture across multi-cloud environments”

  • Mgmt stated commitment to return “a minimum” of 50% of FCF to shareholders via repurchases and dividends. 

  • Company continues to invest organically and through acquisition 

3Q19   .78 vs.66 +18%, est .77

  • May 15, 2019, P=52.44, TTM EPS=2.96, P/E=18X, FY20 P/E=16X

  • Revs +6% ex SPVSS to 13bn, GM 64.6% vs 64.5%, OM 32.2% vs 32%, OpInc +6%

  • Product +7%, Service +3%, Americas +9% to 7.7bn, EMEA +5% to 3.4bn, APJC -4% to 1.9bn, Security +21% to 707m, Applications +9% to 1.4bn, Infrastructure Platforms +5% to 7.5bn

  • Deferred Revs -8% to 17.5bn, up 1% q/q

  • 4Q Guidance: Revs +4.5-6.5% ex divested SPVSS, EPS .80-.82 (+14-17%, est .81)

  • Mgmt indicated new China tariffs factored in their guidance (and China is about 3% of their revs)

  • Solid results and guidance in this environment, stock isn’t cheap but also not horribly expensive, EPS benefiting from slightly lower tax rate and lower share count from buybacks (CSCO generating significant cash flow) 

2Q19   .73 vs 63, +16%, est .72

  • Feb 13, 2019, P=47.50, TTMP EPS= TTM EPS=2.84, P/E=17X, FY20 P/E=14X

  • Revs +7% to 12.4bn, GM 64.1% vs 65.1%, OpEx +3%, OM flat at 32.1%, OpInc +7%

  • Software subscriptions were 65% of total software revs vs 55% last year

  • Infrastructure Programs +6% to 7.1bn, Applications +24% 1.5bn, Security +18% to 658m

  • 3Q Guidance: Revs +4-6% ex $219m from divested SPVSS last year, est +4%, EPS .76-.78, est .76

  • Raised dividend 6% to 1.40, Added $15bn to stock buyback program, now $24bn remaining.

  • Saw steady demand throughout the quarter despite various macro issues reflecting mgmt’s belief that their technology is becoming core rather than optional

1Q19   .75 vs .61, +23%, est .72 up from .69

  • Nov 14, 2018, P=44.33, TTM EPS=2.74, P/E=16X, FY19 P/E=15X

  • Revs +8% to 13.1bn (80bps from acquisitions, not seeing pull-ins to avoid tariffs), GM 63.8% vs 63.7%, OM 31.9% vs 33.3%, OpInc +13% to 4.2bn, NI +14%

  • Product Revs +9% to 9.9bn, Service +3% to 3.2bn, Americas +5% to 7.8bn, EMEA +11% to 3.2bn, APJC +12% to 2.1bn

  • Infrastructure Platforms +9% to 7.6bn, Applications +18% to 1.4bn, Security +11% to 651m

  • Software subscriptions were 57% of total software revenues vs 52% last year

  • Deferred Revs -9% to 16.8bn (due to accounting change and 

  • Used $5bn to repurchase 109m shares @ $46.01, $14bn remaining 

  • DRAM pricing still a headwind y/y, had bought ahead during tight supply, see tailwinds in 3Q and 4Q

  • 2Q Guidance: Revs +5-7% excluding divested SPVSS business revs of 230m in 2Q18, (est +5.9%), EPS .71-.73, (+13-16%, est .72)

  • Solid results, technology leadership and secular themes (productivity, security, connectivity, IT automation) stand out in this environment of fears of weakening global economy.  

4Q18   .70 vs .61, +15%, est .69, FY18 2.60 vs 2.39, +9%

  • August 15, 2018, P=43.86, TTM EPS=2.60, P/E=17X, FY19 P/E=15X

  • Revs +6% to 12.8bn, GM 62.9% vs 63.7%, OM 30.9% vs 31.5%, OpInc +4%

  • Deferred Revs +6% to 19.7bn

  • 1Q Guidance: Revs +5-7%, est +4%, EPS .70-.72 (+14-18%, est .69)

  • Transition continues, stock has recovered what it sold off last quarter.

3Q18   .66 vs .60, est .65 up from .63

  • Revs +4% to 12.5b, GM 63.9% vs 64.4% (product GM decreased due to higher memory costs partly offset by improved productivity), OM 31.5% vs 32.3%, OpInc +1.8%

  • Product revs +5%, Service +3%, all geos up and product revs broad based, Infrastructure platforms +2%, Applications +19%, Security +11%,

  • Deferred Revs +9% to 19bn

  • 4Q Guidance: Revs +4-6%, est +5%, EPS .68-.70, +11-13%, est .69

  • Results and guidance are fine, technology transitions continue as does evolution towards subscription model, stock a bit weak after hours but has been strong over the past year and isn’t far off its highs, while it’s not yet expensive, it’s sporting a more normal P/E ratio and not as cheap as it used to be.

 

2Q18   .63 vs .57, est .59

  • Stock +23% from when they reported 1Q18, increased dividend 14%, added $25bn to share repurchase authorization to $31bn

  • Revs +3% to 11.9bn, GM 64.7% vs 64.1%, OM 31.7% vs 31.0%, OpInc +5%

  • Catalyst 9000 is fastest ramping product in their history, solid uptake on subscriptions

  • 33% of total revs were recurring, subscriptions accounted for 52% of software revs, Def Revs 18.8bn vs 17.1bn last year

  • Guidance: 3Q Revs +3-5%, EPS .64-.66, est .63 (includes BroadSoft acquisition)

1Q18   .61 vs .61, est .60

  • Revs -2% to 12.1bn, GM 63.7% vs 65.2%, OM 30.4% vs 31.6%, OpInc -5%

  • Def Revs 18.6bn vs 16.95bn last year, continue to make good progress converting to subscription based revenues.

  • 2Q Guidance: Revs +1-3% (est +0.9%), EPS .58-.60, vs .57, est .58

4Q17   .61 vs .63, est .61 FY17 EPS 2.39 vs 2.36

  • Revs -4% to 12.1bn, GM 62.2 vs 63.1% vs 63.9%, OM 31.5%

  • Recurring revs 31% of total vs 27% last year (11% of product, 51% of software), Deferred Revs +12% to 18.5bn, order rates improved q/q

  • Realigning segments: Infrastructure Platform, Applications, Security, Services, and Other.

  • Talked about network innovation in new Catalyst 9000 switches such as detecting threats in encrypted traffic with unprecedented accuracy while maintaining privacy

  • 1Q Outlook: Revs -3% to -1% (est -2.5%), EPS .59-.61, est .60

3Q 17.60 vs .57, est .58

  • Revs -1% to 11.9b, GM 64.4% vs 65.2%, OM 32.3% vs 30%

  • Product orders -4% lead by emerging markets, Deferred revs +13% to 17.3bn

  • 4Q Outlook: Revs -6% to -4% (implies 11.9b-12.15b) weaker than est, GM 63-64%, OM 29.5%-30.5%, EPS .60-.62 vs .62 est and .63 last year, stock weak in after-market

  • Cisco in another multi-year transition (investors weren't patient during the last one), shifting to software and subscription model is having an impact on y/y comps but mgmt. expects weaker 3Q orders will continue into 4Q, also seeing some softer results in Svc Provider Video, U.S. federal, Mexico (largely SP Video), Growing deferred revenue is a silver lining for the transition.

2Q 17, .57 vs .57

  • · Revs -2% vs guidance -4% to -2% to 11.6bn (31% recurring), Americas -3%, EMEA flat, APJC -3%,

  • · Routing -10% but saw growth in orders

  • · GM 64.1% vs 64.2%, OM 31.0% vs 31.2%

  • · Def Revs 17.1bn, +13%, deferred product +19%, services +9%

  • · Quarterly div .29 from .26

  • · Announced intention to acquire AppDynamics expected close in 3Q17

  • · Guidance -2% to flat (3Q16 had 14 weeks), EPS .57-.59 vs .57, cautious on Asia and Europe

1Q17 .61 vs .59

 

4Q16 .63 vs .58         FY16 2.36