Today we're going to take a closer look at large-cap Telecommunications company Cisco Systems, whose shares are currently trading at $49.45. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Very Low P/E Ratio but Trades Above Its Graham Number:
Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 23.78 and an average price to book (P/B) ratio of 3.46. In contrast, Cisco Systems has a trailing 12 month P/E ratio of 14.9 and a P/B ratio of 4.43.
Cisco Systems's PEG ratio is 2.3, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company's Revenues Are Declining:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $49,330 | $51,904 | $49,301 | $49,818 | $51,557 | $56,998 |
| Revenue Growth | n/a | 5.22% | -5.02% | 1.05% | 3.49% | 10.55% |
| Operating Margins | 26% | 28% | 28% | 27% | 28% | 27% |
| Net Margins | 0% | 22% | 23% | 21% | 23% | 22% |
| Net Income (MM) | $110 | $11,621 | $11,214 | $10,591 | $11,812 | $12,613 |
| Net Interest Expense (MM) | $943 | $859 | $585 | $434 | $508 | $427 |
| Depreciation & Amort. (MM) | $221 | $150 | $141 | $215 | $313 | $282 |
| Earnings Per Share | $0.02 | $2.61 | $2.64 | $2.5 | $2.82 | $3.0700000000000003 |
| EPS Growth | n/a | 12950.0% | 1.15% | -5.3% | 12.8% | 8.87% |
| Diluted Shares (MM) | 4,881 | 4,453 | 4,254 | 4,236 | 4,192 | 4,105 |
| Free Cash Flow (MM) | $12,832 | $14,922 | $14,656 | $14,762 | $12,749 | $19,037 |
| Capital Expenditures (MM) | $834 | $909 | $770 | $692 | $477 | $849 |
| Current Ratio | 2.11 | 1.7 | 1.59 | 1.62 | 1.45 | 1.47 |
| Total Debt (MM) | $16,239 | $9,563 | $5,780 | $949 | $8,878 | $1,768 |
| Net Debt / EBITDA | -2.13 | -2.37 | -0.36 | -1.59 | -0.65 | -1.35 |
Cisco Systems has strong margins with a stable trend, exceptional EPS growth, and low leverage. However, the firm suffers from weak revenue growth and decreasing reinvestment in the business and irregular cash flows.
