When it comes to CEOs, a little hyperbole isn’t unusual.
Indeed, these men and women tend to be the ultimate cheerleaders for their respective businesses. But this earnings season, one CEO has taken the cake for most exuberant fanboy.
In the company’s latest earnings report, this CEO said his firm “could not be better positioned in the market.”
He went on to say that the company is “pulling away from [its] competitors.”
And he said that they’re working “with [a] speed and scale that no one else is coming close to.”
If you’re inclined to write this off as bravado, I don’t blame you… but this CEO may actually be right. And if he is, the company in question represents a killer value right now.
That firm is Cisco Systems (CSCO), a multinational technology company and the worldwide leader in networking equipment. Its CEO is John Chambers.
Cisco has been around since 1984, and it has experienced its share of highs and lows in that time. In fact, in March 2000, Cisco was briefly the most valuable company in the entire world, with a market cap of over $500 billion. But by October 2001, Cisco stock had lost an incredible 85% of its value.
Today, it has re-established itself as a dominant tech firm – though with a market cap of about $150 billion, it’s far from the powerhouse it was 15 years ago.
Still, it might be surprising to hear that the stock is cheap right now. In fact, Cisco is trading at a discount almost any way you slice it. For starters, the stock is trading well below nearly all of its historical average valuations:
And Cisco is also cheap relative to other technology companies. Its current enterprise value-to-EBITDA ratio (EV/EBITDA) is 9.3x, while the average for tech companies in the S&P 500 is 16.3x. It’s also crushing other tech firms when it comes to price-to-free cash flow ratio (P/FCF) – Cisco boasts a 13.8x multiple, while the average for S&P 500 tech companies is significantly higher, at 21.2x.
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Cisco also boasts a pretty decent yield, which it just bumped to 2.86%. That brings one-year dividend growth to 9.5%… but the really impressive figure is the company’s three-year dividend growth of 162.5%.
In total, CSCO has consistently grown its dividend for four years now, and, with $11 billion in free cash flow (enough to cover the dividend three times over), management should continue to increase the dividend going forward.
Looking ahead, Cisco plans to be at the forefront of the so-called Internet of Everything, and it will soon reap the benefits. In fact, CEO John Chambers believes that the Internet of Everything will have five to 10 times the impact that the Internet itself did not long ago.
Specifically, Cisco believes that, in the near future, more than half of all data will be handled and decisions will be made at the edge of the network, a place where Cisco is clearly the dominant company in the market.
Keep in mind, of course, that everything a CEO says should be taken with a grain of salt. The important thing is that Cisco stock is on sale right now. And if the company can even do half of what its brash CEO believes, shareholders should be richly rewarded.
So there you have it… a global tech powerhouse trading at a discount right now, with plans for much bigger things in the near future. Better yet, Cisco pays a solid dividend, so you can take home some profits while you wait for the Internet of Everything to proliferate.