cisco

Cisco stock (NYSE: CSCO) is trading higher in US premarket price action today. The company reported better than expected earnings in its fiscal fourth quarter of 2022 and also provided an upbeat outlook amid the improving chip supply situation.

Cisco reported revenues of $13.1 billion in the fiscal fourth quarter of 2022 which were flat on a YoY basis. In the full fiscal year, the company’s revenues increased 3% and reached $51.6 billion. It had an ARR (annualized recurring revenues) of $22.9 billion in the fourth quarter, 8% higher than the corresponding quarter in the last year. Cisco has been working to increase its ARR under its transformation.

The company’s fourth quarter revenues were ahead of the $12.79 billion that analysts were expecting. Its adjusted EPS fell 1% YoY to 83 cents but was marginally higher than what analysts were expecting.

Cisco’s CEO Chuck Robbins expressed pleasure over the company posting the highest ever annual non-GAAP earnings in what he called an “incredibly dynamic environment.”

He added, “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.” The company has a record order backlog which provides revenue visibility amid a challenging market environment.

Cisco Provided Upbeat Outlook, Stock Rises

Cisco said that it expects revenues to rise between 4-6% in the fiscal year 2023, which at the midpoint is higher than what the company posted in the fiscal year 2022. Analysts were expecting its revenues to rise only about 2.6% in the year. Its EPS guidance was higher than expected.

Cisco also sounded bullish on the long-term trajectory of the business. Robbins said, “There are currently more technology transitions occurring concurrently than I’ve seen in 20 years.” He added, “Long-term megatrends like hybrid cloud, hybrid work, security, IoT, 400-gig and beyond, 5G, and WiFi 6, as well as the move toward application observability, will likely provide tailwinds to our growth.”

Cisco to Benefit from 5G Transition

Notably, Cisco is among the list of companies that would benefit from the 5G transition. Several countries are now moving to 5G which would open up new business opportunities for companies like Cisco. The 5G transition would help increase the pace of digital transformation.

Smartphone companies like Apple would also benefit as more people globally shift from 4G to 5G handsets. Warren Buffett also bought more Apple shares in the second quarter of 2022, for the second consecutive quarter.

Apple is also a 5G Play: Analysts See the Stock as a Buy

Apple reported better than expected earnings in the fiscal third quarter of 2022. Wall Street analysts were also impressed with the company’s earnings. While Goldman Sachs reiterated the stock as neutral, Morgan Stanley reiterated the stock as overweight and advised investors to buy Apple stock. Morgan Stanley termed Apple as “resilient” and said that it remains its top pick while maintaining its $180 target price.

Coming back to Cisco, the company is benefiting from an improved supply chain. It said, “While the component supply headwinds remain, they have begun to show early signs of easing.” Far from being constrained by chip supply, the industry now has ample chip supplies to the extent that some chip companies are now adjusting production for a slower demand. While sales of PCs and smartphones have come down, Cisco said that it is not witnessing any slowdown or order cancelations.

Cisco returned $4 billion to stockholders in the quarter and has an annual dividend yield of 3.27% which looks quite attractive, especially for someone chasing stable high dividend stocks. The stock is up over 4% in premarkets today at quoted at around $46.6. It has a 52-week trading range of $40.82-$64.28.

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