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Friday September 14, 2012
Cisco: Breaking out of the doldrums
by George Putnam, editor The Turnaround Letter  Cisco Systems (CSCO) peaked at $77 in early 2000 before declining sharply as the bubble burst; the stock has bounced around in the teens and twenties for much of the last decade.The networking stock finally appears to be on the verge of breaking out of its more than decade-long doldrums. The company is focused on building up its market-leading positions in some of the most important technology segments in order to build profits and cash flow. Moreover, the company is now committed to returning a significant portion of that growing cash flow to shareholders. Cisco is the dominant supplier in many of its markets. Moreover, its products provide the backbone for several of the fastest growing technology sectors, including cloud computing, video, smart phones, and social networking. In addition to its hardware businesses, Cisco is seeing steady growth in its service offerings, which generally have higher margins. Not only does Cisco have a broad product line, but its markets are well diversified geographically. More than 40% of revenue comes from outside the Americas. Emerging markets continue to grow in importance for Cisco, accounting for more than 12% of revenues last year. In its quest for improved profitability, the company is cutting costs as well as growing revenue. It has reduced worldwide headcount by more than 5,000 over the past year and streamlined its operating structure. In addition, it has sold off several of its consumer businesses that had been a drag on overall profits. The company’s balance sheet is impeccable, with more than $48 billion in cash and equivalents and relatively little debt. Cash flows are growing, and management is committed to returning 50% of free cash flow to shareholders through dividends and share repurchases. The company’s nearly three percent dividend yield puts it in the top echelon of dividend payers in the tech sector. Cisco has been like the sleeping giant of the technology industry since the Internet bubble burst in 2000. We now believe that the giant is awakening, and will give shareholders a good ride in the coming years. We recommend buying Cisco stock up to $26. Learn more about this financial newsletter at George Putnam's The Turnaround Letter. Related articles: 
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