Cisco Is Getting Interesting

Cisco is starting to look interesting. Ex-cash the company trades at around $10 and analysts estimate they will earn $1.60 this year. I look at the number including stock options expense, which is $1.30. I believe handing out stock options is an expense that should be considered in one's valuation analysis.

Cisco is facing competitive pressures in what used to be a virtual monopoly and earnings are at risk. Even if earnings fall by 30% the stock still looks cheap, giving it a decent margin of safety. I am planning to do more work on this one.

1 comment:

frank revelo said...

I've never understood why Cisco didn't face more intense competition 10 years ago. Very few barriers to entry. Not even a lot of opportunities for patents, like with printers or storage. Lot IBM, they're effectively a service business, not a product business. That is, you pay a little extra (above the commodity level price) for IBM or Cisco because you want the after-sale service. There's money in such a business. Problem is, IBM could decide to use its quality service reputation to swallow up Cisco's business, or vice-versa, or the two of them could defend their business by squandering margins on an arm's race of better and better service.

Short AAPL, long MSFT is the way to go. APPL will stumble eventually, as sure as night follows day. MSFT isn't going away anytime soon and they pay a dividend.