Another Record Quarter for Cisco, Shares Fairly Valued

The narrow-moat firm posted 8% year-over-year revenue growth, with strength across all the business segments and provided strong guidance for the next quarter. After updating our Cisco forecast to consider stronger growth driven by expected cross selling of multi-cloud environment products, security solutions, and infrastructure hardware, we are raising our fair value estimate to $46 per share from $43.

With shares trading around our fair value estimate, we recommend for investors to sustain their Cisco positions.

The company guided the second quarter to have a 5%-7% growth over the previous year with 30.5%-31.5% non-GAAP operating margins. Cisco is benefitting from a strong IT spending environment, and we believe that the company's product roadmap has made the it a one-stop-shop for networking environments. Two major recent announcements by Cisco were its integration of security into SD-WAN products and its offering of production grade Kubernetes to be run on premises and then offloaded to Amazon AWS.

We like that Cisco is intertwining previously siloed offerings into combined solutions that contain unique selling features. Additionally, having support with all three major hyperscale public cloud providers allows Cisco to be a commonality for IT teams balancing on-premises, private, and public cloud environments. We like that Cisco has completely embraced the cloud as a path to growth instead of a business threat. In our view, Cisco's innovative product portfolio should keep it on the shortlist for enterprise customers debating networking infrastructure providers for hardware, software, and services in cloud environments or on premises.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.