Talking Numbers

Surprise! This company may be the next compelling value play

Surprise! This company may be the next compelling value play

The market may be down, but one surprising stock is up 7 percent. And, according to one portfolio manager, Cisco might be one of the best value stocks out there right now.

Such sentiment may be startling because Cisco's revenues of $11.5 billion in the most recent quarter were actually down 5.5 percent compared to the previous year. Meanwhile, the networking equipment-maker's $2.2 billion in net income during that time was 12 percent lower than last year.

Then why is a company with declining revenues and profits now trading up, especially on a day with rest of the market off by more than 1 percent? The big reason is that the decline in sales and profits were a little bit better than Wall Street expected.

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Chad Morganlander, portfolio manager Stifel Nicolaus' Washington Crossing Advisors, says the company's sales environment is improving and its outlook is getting better. He also considers the stock, trading around $24.40 per share, to be a value play.

"They have $6 of cash per share on their balance sheet," Morganlander said, and "they're going to be earning roughly around $2 to $2.10 over the next four quarters."

Morganlander expects Cisco's revenue growth of around 3 percent over the course of the next 12 to 18 months. At current prices, its dividend yield is expected to be 3.3 percent over the next year.

"You get a good dividend for waiting," said Morganlander, who has a $27 price target on the stock. "We think this is a great value play. We own it in our portfolio [for the] long run."

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Ari Wald, head of technical analysis at Oppenheimer & Co., says the charts confirm Morganlander's positive forecast.

"Coming into the year, analysts' sentiment was very 'beating up' on it," Wald said. "It really started to improve in March."

Wald said the 50-day moving average had been a resistance level, but now it's doing a much better job as support. The 50-day moving average is currently $22.54.

Thursday's breakout "is really confirming this turnaround story," Wald said. "A test of the old highs at around $26.50 is in store. To be tactical, maybe you want to buy it on a little bit of a dip."

Given the stock "gapped up" on its most recent earnings news, Wald believes the stock will retrace a little bit, to $23.50.

"The $23.50 mark I see as some pretty good near-term support," said Wald. "That's where you want to pick up some shares."

To see the full discussion on Cisco, with Morganlander on the fundamentals and Wald on the technicals, watch the above video.


Stifel expects to receive or intends to seek compensation for investment banking services from Cisco Systems in the next 3 months. Stifel makes a market in the securities of Cisco Systems. Washington Crossing Advisors owns Cisco Systems in its portfolio.

Oppenheimer & Co. makes a market in the securities of CSCO. The stock is also covered at Oppenheimer with an outperform rating.

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