Tech behemoth Apple Inc. (AAPL) reported a net income of $19.44 billion for the third quarter ended June 25, 2022, down 10.6% year-over-year, while its EPS came in at $1.20, down 7.7% year-over-year.

The stock trades at a rich valuation. Its forward EV/EBITDA of 18.72x is 48.7% higher than the industry average of 12.59x. Its forward Price/Cash Flow of 20.56x is 22.7% higher than the industry average of 16.76x. The stock has lost 9.8% over the past month and 12.5% year-to-date.

On the other hand, Cisco Systems, Inc. (CSCO) 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.

On August 17, 2022, Chuck Robbins, CSCO’s Chair and CEO, said, “Full-year product orders and backlog are both at record highs and reflect the strong demand we continue to see for our innovation and the overall value we bring to our customers as they accelerate their digital transformation.”

CSCO has lost 5.7% over the past month to close the last trading session at $43.00. Also, the stock has lost 30.6% year-to-date. However, it has gained 2.5% over the past three months.

Here is what could shape CSCO’s performance in the near term:

Attractive Valuations

CSCO’s forward EV/EBITDA of 8.76x is 30.4% lower than the industry average of 12.59x. Its forward Price/Cash Flow of 10.94x is 34.7% lower than the industry average of 16.76x. Moreover, its forward P/E of 14.89x is 29.8% lower than the industry average of 21.21x.

Favorable Analyst Expectations

Analysts expect CSCO’s revenue to increase 5% and 4% year-over-year in 2023 and 2024, respectively, while its EPS is expected to increase 5.1% and 7.6% year-over-year in 2023 and 2024, respectively. Moreover, its EPS is estimated to grow 6.7% per annum for the next five years. The stock surpassed EPS estimates in all four trailing quarters.

Of the 19 Wall Street analysts rating CSCO, eight rated it Buy, ten rated it Hold, and only one rated it Sell. Moreover, Wall Street analysts expect the stock to hit $54.63 in the near term, indicating a potential upside of 27.2%.

Robust Profitability Margins

CSCO’s trailing-12-month gross profit margin of 62.55% is 24.2% higher than the industry average of 50.35%. Its trailing-12-month EBITDA and net income margins of 30.84% and 22.91% are higher than the industry averages of 13.05% and 4.28%.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 29.15%, 16.81%, and 12.57% compared with the industry averages of 7.28%, 3.97%, and 2.84%, respectively.

POWR Ratings Reflect Promising Outlook

CSCO has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Quality, consistent with its higher-than-industry profitability margins. Further, the stock has a C grade for Stability, in sync with its 24-month beta of 0.86.

In the 50-stock Technology - Communication/Networking industry, CSCO is ranked #5. Click here for the additional POWR Ratings for CSCO (Growth, Value, Momentum, and Sentiment).

View all the top stocks in the Technology - Communication/Networking industry here.

Bottom Line

CSCO’s EPS has increased at a 2.6% CAGR over the past three years. Moreover, analysts are bullish on its near-term prospects. While AAPL has delivered solid returns over the past years, I think CSCO could be a significant tech player in the coming years and might be an ideal addition to your portfolio.

How Does Cisco Systems, Inc. (CSCO) Stack Up Against its Peers?

While CSCO has an overall POWR Rating of B, one might consider looking at its industry peers, AudioCodes Ltd. (AUDC), Viavi Solutions Inc. (VIAV), and Extreme Networks, Inc. (EXTR), which have an overall A (Strong Buy) rating.

CSCO shares were trading at $43.30 per share on Friday afternoon, up $0.01 (+0.02%). Year-to-date, CSCO has declined -30.17%, versus a -18.22% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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