Here's Why You Should Retain Cisco (CSCO) In Your Portfolio

Shares of the largest player in the networking space, Cisco Systems (NASDAQ:CSCO) have been moving north backed by the company’s innovation prowess, expanding product portfolio, increased collaborations and investor-friendly decisions.

Cisco’s rapidly expanding footprint in the network security market and leadership position in WLAN and Ethernet switching are driving growth for the company. Moreover, with increasing demand for networking solutions and an exponential mobile data traffic growth, there has been an increasing need to manage data traffic efficiently while minimizing costs. Cisco’s plan to tap this market by adding network management solutions is a key positive.

Collaborations Hold the Key

Cisco’s collaborations with the likes of Accenture, Intel (NASDAQ:INTC), Microsoft, NetApp (NASDAQ:NTAP), Oracle (NYSE:ORCL), Red Hat and VMWare for the development of its pioneered Unified Computing System (UCS) have been transforming data centers throughout. We believe that UCS will not only improve flexibility and scalability of data centers but also reduce the cost of the systems and simplify operations. This will contribute significantly to Cisco’s future success as the company builds its Next Generation Data Center stack.

The company’s strategic collaborations have resulted in increased access to new technology and development of innovative products, thereby expanding its total addressable market (TAM). As part of its collaboration with Apple (NASDAQ:AAPL) , Cisco plans to deliver the first enterprise security application on Apple iOS.

Moreover, integration of Cisco’s hardware platform with Microsoft’s (NASDAQ:MSFT) Azure will enable businesses build and host their IoT applications in Microsoft Azure while enhancing the power of those applications via Cisco's Fog computing solutions.

Riding on its product innovations and market leadership, shares of Cisco hit a 52-week high of $42.69 on Jan 24, closing marginally lower at $42.17.

Impressive Earnings Surprise History

Cisco outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive earnings surprise of 1.73%.

Its earnings per share (EPS) are estimated to grow 5% over the long term.

Valuation Looks Impressive

On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 17.15x, significantly lower than the industry average of 20.53x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, the lower the P/E of a stock, the better it is for a value investor.

A Word of Caution

The company continues to expand through increased acquisitions. Therefore, it faces high integration risk, putting its financials under pressure. Moreover, competitive pressure is intense.

Key Pick

A better-ranked stock in the broader technology sector is NVIDIA Corporation (NASDAQ:NVDA) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NVIDIA has a long-term expected EPS growth rate of 10.25%.

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