Shares of the company “Cisco systems”. (Nasdaq:CSCO) has been on an impressive rebound at the end. While Cisco stock fell with the rest of the market in February and April, it was a performer on the road.
Over the past ten calendar days, Cisco shares rose more than 9%, compared to 3.6% and 5.25%, respectively, of the gain in the spdr s&P 500 in real-time trust (NYSEARCA:spy) and participate qqq trust, Series 1 (data) (Nasdaq:KKK).
With such a rapid rally, though, need to lighten up on Cisco?
The company does not report profit until may 16, but I could see a scenario where Cisco shares rallies in this event. Much more rally will put it in a new 52-week high territory. There are several reasons to believe that Cisco can continue higher.
3 reasons the stock CSCO can unite
The company has a lot of money. When Cisco reported earnings in February, it had almost 74 billion dollars sitting in the Bank. When accounting for debt, Cisco, sitting on more than $ 40 billion. Remember, it only has a market capitalization of $212 billion, so a fair amount of this cost money.
It can return capital to investors in the form of share repurchases and dividends. Keep in mind that despite the fact that near its highs, Cisco also gives 3% dividends. Also note that he just killed her redemption at $ 25 billion ($31 billion) and raising the dividend by 14%. It also has the capital necessary to complete one or more acquisitions.
That ties in to our second reason: the transition. “A game-changing acquisitions” we mentioned above can help accelerate software and services segments of the security Cisco is working on.
Previously relying on your router and switch businesses, the management realized that changes are needed. It’s not unlike Microsoft (Nasdaq:Russian market) or International business machines Corp. (US:IBM).
Cisco needed to adapt in order to increase revenue and profit growth. The company provides an opportunity for both of them, and, as a rule, leads to higher valuation from the shareholders. It is also what has led to revenue and earnings beat last quarter and stronger-than-expected Outlook for the upcoming quarter.
While investors cheer better-than-expected growth, he becomes more and more attractive with our third reason to buy Cisco stock: assessment. Shares of CSCO trades at less than 17 times earnings this year and only 15 times next year’s estimates.
Although estimates of the call for sub-sales growth of 3% in 2018 and 2019, revenues are projected to rise this year 8% (there are only two quarters in fiscal 2018) and almost 11% in fiscal 2019.
Trade Cisco Stock
That’s the takeaway from the section above: growth is accelerating. Revenue growth in 2019 will be stronger than in 2018, and revenue growth. Cisco will report its fiscal third quarter, in may, and that means we’re just a few months before the beginning of fiscal 2019. During this period, the margin will also increase.
I think that’s why CSCO run to new highs. It has a low valuation, big dividend yield and is in the band where the top and bottom line growth has a long runway for acceleration. There are not many reasons to be bearish at the moment.
Click to enlarge
Above presents a fresh chart from Cisco. We can say that every time the stock CSCO is already rolled, he kept right where you need it. In the beginning of the year, Cisco broke $38, and then held this level as a support in February, the stock market is in free fall. Here’s what I think that $45 level will eventually become.
It’s only a matter of time.
If the market behaves, the stock CSCO can continue to creep up and push through. If the market falters, look for Cisco to test the April lows around $40, although the 100-day moving average can also act as support.
Here’s the bottom line: Cisco’s stock is a buy, but not here. Either buy on a breakout above $45 or on a pullback to the area of 41 $to 40$.
Bret Kenwell Manager and author of the forthcoming “blue chips” and on Twitter @BretKenwell. At the time of this writing, Bret Kenwell not to take a position in any of the above securities.