Cisco's (CSCO) stock rallied from the mid-$30s into the mid-$40s as investors awaited fiscal Q3 earnings on May 16. Despite Cisco beating bottom and top lines, the stock plunged by more than 5% on the next day and is still trading in that area as of today.
The stock's fabulous rally earlier in the year was driven by the fact that Wall Street largely underestimated the impact of Cisco's business transformation which has helped the company to return to revenue growth after multiple quarters of declining sales.
Cisco is one of my largest holdings, and as it is trading now above a 3% yield again, the earnings-driven selloff has created another attractive buying opportunity as the business continues to grow both organically and via acquisitions.
What is going on at Cisco?
Cisco's fiscal Q3 2018 report has seen accelerating revenue growth of 4.4% Y/Y (compared to 2.6% Y/Y for the penultimate quarter) and an expansion of EPS by $0.06 Y/Y. This quarter represented the second consecutive quarter of revenue growth, and with that growth accelerating, it truly shows that Cisco's subscription story is gaining momentum.
These are more than just solid figures, but more importantly, the company's growth in deferred product revenue remains in the double digits (+18%) and in line with previous quarter's performance (+19%). And finally Cisco's guidance forecast revenue growth of 4% to 6% and EPS between $0.68 and $0.70 and thus right in line with expectations of 5% sales growth and $0.69 in EPS.
By: Stefan Redlich (Seeking Alpha).
Photo: The Herald of Finance.
Review: Emerging Market Formulations & Research Unit, Flagship Records.