Is Cisco share price a good value tech option?

Cisco’s [CSCO] share price has had a rough January. Since the start of the month the stock has tumbled more than 11%. Sure, there have been heavier falls in the early stages of 2022 - just look at Netflix [NFLX] and PayPal [PYPL] - but the performance thus far hasn’t been great.

Clearly a double-whammy of the market rout in tech stocks and analysts adjusting their forecasts has been felt on the stock - as has underwhelming earnings. But with quarterly results on the horizon, and a relatively low price-to-earnings multiple, can Cisco’s share price return to positive growth in what has been a fractious and jittery start to 2022?

What’s happening with Cisco’s share price?

Over the 12-month period, Cisco’s share price is up over 26%. Yet since reaching $64.29 on 29 December 2021, it’s been a downward slide for the stock. Last week saw a drop of 7.7%, going from $59.84 to close Friday at $56.28, with those losses continuing into this week as the wider Nasdaq entered correction territory.

On a fundamental level, quarterly earnings expected in early February will be closely watched. The last time Cisco updated the market, it delivered revenue of $12.9bn for the fiscal first quarter, up 8% year-on-year. Adjusted earnings per share came in at $0.82, again up 8% year-on-year. While earnings just about beat expectations, revenue was off the predicted $12.98bn.

During the quarter there were some bright spots. Its Secure, Agile Networks business, pulled in $5.97bn in revenue - a 10% jump for the segment that includes data center networking switches. The Internet for the Future category, which includes 5G, made $1.37bn in sales, up 46%. 

Cisco said that supply constraints and increased costs had affected gross margin, which in turn weighed on second quarter guidance that missed Wall Street expectations. To help offset pressure on margins Cisco has raised prices, something that should help revenues in future quarters, according to Scott Herren, Cisco’s finance chief.

For the full year, Cisco is expected to make $52.75bn, up 5.9% year-on-year, however this is expected to slow to a growth rate of 5% in 2023 with sales coming in at $55.4bn.

What the analyst are saying

Cisco could be a good value tech stock that could “work when the Federal Reserve raises interest rates,” according to CNBC’s Jim Cramer writing in his CNBC Investing Club newsletter.

“Cisco shares trade at an undemanding 16x forward price-to-earnings multiple, it pays a solid 2.64% dividend yield, and share repurchases are typically in the mix as well. Furthermore, we like Cisco for its business model transformation to software from hardware and exposure to trends in enterprise IT spending,” Cramer wrote to subscribers on Tuesday.

Over at Goldman Sachs, analyst Rod Hall downgraded his rating on Cisco’s share price from Buy to Neutral this month, saying that consumer IT spending is likely to slow. According to Goldman’s activity index, US IT spending started to decline in December and was “significantly below record high levels…seen between April and June last year.”

“While we continue to see Cisco’s ongoing [Catalyst 9000] refresh and increased campus networking demand as tailwinds we believe this is now more balanced by broader demand headwinds that we expect to materialize,” Hall wrote.

“While we continue to see Cisco’s ongoing [Catalyst 9000] refresh and increased campus networking demand as tailwinds we believe this is now more balanced by broader demand headwinds that we expect to materialize” - Goldman Sachs's analyst Rod Hall

Hall stuck with his $65 price target, suggesting a 16% upside on Tuesday’s close.

Citi analyst Jum Suva also has a $65 price target on Cisco, having raised it from $55 in December. The analyst has a Neutral rating on the stock and argues that without aggressive investment the company’s move away from legacy systems may take some time.

One of the more bullish price targets is the $73 Tigress Financial’s Ivan Feinseth pinned on the stock earlier in January. The analyst reiterated his Buy rating citing increased enterprise spend on IT. Another bull is JP Morgan’s Samik Chatterjee who trimmed his target on Cisco from $70 to $69. The analyst has an Overweight rating and sees the recent pullback in as a possible buying opportunity.

Among the analysts tracking Cisco’s share price on Yahoo Finance, the stock carries a $62.92 price target - hitting this would see more than 10% upside on Tuesday’s close.

How well Cisco is measuring up to its guidance will play a part in which way the stock goes post-earnings. Right now the stock seems to have gotten caught up in the wider market selloff, but could potentially represent good value for investors