When it comes to the tech world there’s established, blue-chip tech and then there’s experimental tech and Cisco Systems (NASDAQ: CSCO) is as established as a company can be. The company manufactures, markets, and services IP-based networking, routing, and infrastructure components used by the communications and information technology industries which means that everybody on the Internet is relying on Cisco Systems because it is fundamental to today’s connected world. With 5G markets ramping, connectivity spreading, and penetrating society deeper than ever, it is no wonder this company just reported a blowout report that is part and parcel of why the stock is rebounding.
Steady Cisco Systems Outperforms The Consensus
Cisco Systems' results weren’t a blowout but they prove the underlying strength of the business and the impact of an ongoing shift in focus. The company has been working hard to transform itself from a components pure-play into a blend of products and services and the move is not only boosting growth but reducing volatility in the quarter-to-quarter business. The transformation resulted in $13.1 billion in net revenue for the 4th quarter which is down -0.2% YOY but $0.320 or 250 bps better than the Marketbeat.com analyst's consensus. On a segment basis, Products and Services were both flat on a YOY basis with spotty performance across regions and end markets.
Cisco also outperformed on the bottom line despite the expectations for a general slowdown in business. The company reported narrowing margins for all comparisons but not enough to offset the revenue strength. The adjusted EPS of $0.83 is down a penny from last year but beat by a penny and comes with favorable guidance as well. The product orders and backlog both set records in the quarter and support an outlook for accelerating growth in F2023. The guidance is calling for revenue growth in the range of 2% to 4% in Q1 that will accelerate to the 4% to 6% range by year-end with EPS in the range of $3.49 to $3.56. These targets are in line with the consensus but leave room for upside surprises and they may also be cautious.
Cisco Systems Is A High-Yielding Value
Cisco Systems is not only a blue-chip tech stock akin to Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) but it is also a high-yielding value compared to peers, the tech sector, and the broad market. Shares of Cisco are trading at about 13X earnings and paying 3.2% in yield compared to a much higher 28X valuation for Microsoft and Apple which both pay less than 1.0%. Cisco will never trade at 28X its earnings again but it is a far better choice in terms of value and yield and it comes with an outlook for growth. Near-competitor Juniper Networks (NASDAQ: JNPR) also offers an attractive combination as well at 15X earnings and 2.85% in yield but even these figures pale in comparison to Cisco and Juniper Networks did not issue favorable guidance when it reported earnings.
As for the distribution health, the company is paying out 44% of the consensus earnings estimate and outperforming it and it has a healthy balance sheet as well. The cash position is down and the company is net debt but leverage is very low, debt is also down, and there is ample room in the cash flow for share repurchases as well. The company bought back nearly $7.7 billion worth of shares in 2022 which is worth about 3.9% of the current market cap.
The Technical Outlook: Cisco Systems Reverses
The price action in Cisco Systems corrected to support earlier this year on fears of a slowdown that is not materializing. The news has shares moving up off of a bottom and above an important technical level that suggests even higher prices are to come. That level is the 150-day moving average near $48.50, a level that should provide support now that price action is moving higher. If not, shares of Cisco Systems could fall back to retest support before they move higher. 
