Network communications giant Cisco Systems (NASDAQ:CSCO) stock is reawakening for a long-awaited breakout after a decade-long consolidation. The former high flyer from the early days of the internet mania has gone into hibernation written off as a legacy player despite being a critical component of enabling the world wide web infrastructure to function properly. The information superhighway doesn’t function without routers and switches. The Company has quietly been going through a transformation both organically and through acquisitions. The former momentum growth stock has been largely relegated to a value and income play. However, the tailwinds from COVID vaccinations driving re-opening, return to work, IT spending, and 5G rollout trends may accelerate growth beyond the 5% annual rate anticipated by most analysts. The bar has been set low for Cisco for years placing a sleeping giant as an underdog. Prudent investors looking for a stable value play that may soon accelerate growth can monitor opportunistic pullback levels in Cisco shares.
Q2 Fiscal 2021 Earnings Release
On Feb. 9, 2021, Cisco reported its fiscal Q2 2021 Cisco for the quarter ending January 2021. The Company reported earnings-per-share (EPS) of $0.79 versus consensus analyst estimates for $0.75, a $0.04 beat. Revenues fell (-0.4%) year-over-year (YoY) to $11.96 billion, beating analyst estimates for $11.90 billion. Non-GAAP margins improved to 34.4%, higher than the earlier guidance of 33%. Primary strength was in the Catalyst 9000, Data Center Switching, Security, Wireless and WebEx segments. The migration to subscription-based software model continues as 76% of software revenues are subscriptions.
Q3 Fiscal 2021 Preliminary Guidance
Cisco issued flat EPS guidance for Q3 fiscal 2021 in the range of $0.80 to $0.82 versus $0.81 consensus analyst estimates. The Company raised revenues guidance to come in between $12.40 billion to $12.64 billion versus $12.32 billion analyst estimates. The Company increases quarterly dividend to $0.37 per-share from $0.36 per-share. Wi-fi demand grew 20% YoY. Every customer segment saw improvement. Customers are also realizing the significance of security and privacy in data products. Cisco CEO Chuck Roberts stated, “We are seeing encouraging signs of strength across our business showing how our technology will be a powerful engine for revenue and growth… will continue to grow deferred revenue in double-digits through the shift to more software and subscriptions.”
Conference Call Takeaways
CEO Robbins, reviewed the six pillar strategy focus on building network solutions with built-in simplicity and automation, optimizing customers’ application experiences, secure access to address hybrid work solutions, meeting low-latency and higher speed demands, end-to-end security solutions delivered on on-prem or cloud, and developing new edge capabilities for a distributed world. He commented on Infrastructure Platforms, “To manage the highly distributed and complex nature of modem IT environments, our customers must fundamentally change how their networks are architected. To help them achieve this, we are building a unified cloud-native platform suite to deliver secure, agile networking. A good example of this is our subscription-based, intent-based networking portfolio and is reflected in the momentum of our Catalyst 9K family, which saw another quarter of double-digit revenue growth.” The success of Cisco Silicon One platform is credited to customers being able to save up to 30% of network switching power, resulting in reducing network footprint and energy costs. The Acacia acquisition enables delivering leading edge-to-edge optical technology to meet both bandwidth and economic requirements of next-gen networks. The Company continues to transform the majority of its portfolio to cloud-managed, cloud-driven and delivered as-a-service, “If we can deliver it from the cloud, we will.” WebEx continues to deliver double-digit growth with nearly 600 million quarterly users connecting over six billion calls per month. The Company introduced more than 50 new product and feature innovations including noise cancellation, real-time language translation and WebEx Desk Pro series platforms. The recent acquisitions of IMImobile and Slido will bolster WebEx Contact Center services to optimize customer engagements.
Four in One
Much like its smaller competitor Juniper Networks (NYSE:JNPR), Cisco also has four themes but on a larger scale as a value play, 5G rollout play, internet infrastructure play and a re-opening play driving tailwinds. The Company has a solid balance sheet generating $3 billion in operating cash flow and has $30.6 billion in cash, cash equivalents and investments with only $3 billion in long-term debt. While shares reach the double top area, prudent investors can watch for opportunistic pullback levels to consider taking exposure.
CSCO Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a precision view of the landscape for CSCO stock. The monthly rifle chart formed a powerful mini pup breakout with a rising 5-period moving average (MA) support at $47.60 and upper Bollinger Bands (BBs) at $55.64 with a double top resistance at the $58.33 Fibonacci (fib) level. The monthly stochastic is testing the 80-band as it nears the $53.14 fib. The weekly rifle chart form a pup breakout with rising 5-period MA support at $50.89 and upper BBs at $53.97. The weekly formed a market structure low (MSL) buy trigger on the $40.92 breakout and a second MSL triggered on the breakout through $49.08. The powerful dual pup formation means prudent investors will have to remain patient and monitor for opportunistic pullback levels at the $50.55 fib, $49.08 fib, $47.84 fib, $46.33 fib, $43.97 fib, and the $42.30 fib. Upside trajectories range from the $60.67 fib up to the $80.04 fib level.