Cisco results

"Cisco delivered record earnings per share this quarter and record revenue for the 8th quarter in a row in a challenging economic environment. We continue to drive the innovation, quality and leadership our customers expect, and we remain focused on consistent returns to our shareholders, said John Chambers," Cisco chairman and chief executive officer.


This was after Cisco released second quarter results which beat expectations. Net sales of $12.1bn and net income of $3.1bn which equated to 59c per share is what the company managed for the quarter. Expectations for the whole year come in at around $1.71 and $1.92 for 2014. The stock trades at an undemanding $21 or 11 times 2014 earnings.


The company has been through a rough patch. It tried to do too much, increasing its economies of scope and losing focus from its core objectives, which is to provide integrated systems and to service them. By buying businesses which did not fall part of their core business, they started crimping margins which was not taken well by the market. However they realised this and have gone back to plan A, having sold and still selling less profitable businesses.


Analysts reckon that consistent improvement in margins will allow this stock to rerate. Paul often says that the real money is made when a stock rerates on the whim of a brighter future. When the good earnings come in, it is often too late.


But that is market sentiment. The core reason we like the stock is the way the world is going. Smarter smartphones and more smartphone penetration means more data is consumed. Cisco provides the infrastructure for this. The same goes for businesses who strive to become more efficient. Because let's be honest, being connected is the first step. And of course the developing world will be coming off a much lower base in this regard. Cisco already have the architectures, solutions and services to provide these services, probably better than anyone else in the world.


Our one concern is CEO John Chambers who has been CEO of the company since 1995. There is no doubt he is a great man and has had an illustrious career. We just feel a new CEO may be a much needed breath of fresh air. That is not for us to decide though, it is up to the board. Regardless we continue to add and see lots of value at these levels.