Networking and communications devices company Cisco Systems (CSCO) is set to announce earnings for the latest quarter on Aug. 17, and Wall Street is excited. Analysts are predicting that Cisco will be a growth stock winner this year and beyond.
After all, the company has consistently beaten earnings estimates in the past four quarters and may continue that streak, giving you the opportunity to jump in before it is too late. Cisco shares rose slightly during Thursday's session.
If Cisco isn't already part of your portfolio, here is why you should make a place for it immediately.
Cisco's switches and routers are already part of machines across corporations, schools and governments. But the company is now looking to ramp up its security services, in light of cybercrime threats posed at various levels.
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Towards this end, Cisco has already made several acquisitions to fill in holes in it security offerings and present customers with a smorgasbord of products and services.
Cisco continues to maintain a strong focus on security, and this was evident in its new security releases at the recent Cisco Live event in Las Vegas. The company announced three technologies relating to content filtering, malware blocking, threat detection, response software and advanced threat protection, according to a note from Drexel Hamilton. The firm reiterated its buy rating on the stock.
According to Cisco's partners, the company's cloud security sales were climbing at double-digit rates as customers sought to deal with a lesser number of vendors and shift safely to the cloud. Over the past two years, Cisco has mainly acquired firms focused on the cloud.
Still, Cisco has also made three smart acquisitions of security firms.
Cisco's acquisition of U.K.-based Portcullis expanded the company's security consulting services to regions outside North America. Its purchase of Lancope enabled Cisco to add context-aware threat detection and advanced network forensics technology into Cisco routers. Its acquisition of CloudLock in June will enhance Cisco's cloud access security broker technology.
Speculation is rife that Cisco will be looking to acquire California-headquartered security technology vendor Imperva. The addition of Imperva would help Cisco enter areas like Distributed Denial of Service (DDoS) and web application firewalls, according to a partner. It would also strengthen Cisco's capabilities in data security, encryption and data masking, according to experts.
According to Cybersecurity Ventures, companies will spend about $1 trillion on cybersecurity products and services from 2017 through 2021.
Competition is heating up with smaller players entering the fray, but IBM and Cisco already command $2 billion and $1.75 billion of the cybersecurity business, respectively.
There is plenty of growth potential with banks like JPMorgan Chase doubling its cybersecurity budget recently and Bank of America announcing an unlimited budget. Even the U.S. government expanded its budget by 35% in just a year, to $19 billion in 2017.
After remaining somewhat constant between 2009 and 2011, Cisco has managed to consistently expand its free cash flow position to stand at $12.69 billion on a trailing 12-month basis. This more than secures its dividend payments, which currently stand at an attractive yield of over 3.3%.
Analysts are also bullish on Cisco's margins, which are already far ahead of the industry average. According to Cowen & Co., which has an outperform rating on the stock, Cisco has the potential to record 64% gross margin and over 31% operating margin (both proforma, excluding employee stock compensation expense) in the years to come, against the 62%-63% and 28%-29% ranges that currently prevail.
In terms of earnings growth, at an estimate of 10.5% annually for the next five years, Cisco is seen outperforming the S&P 500's 8.2% rate.
If there is a time to buy Cisco, it is now.
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