Can New Leadership Boost Cisco?

11/05/2015 8:00 am EST

Focus: STOCKS

Charles Carlson

Editor, DRIP Investor

Our latest featured recommendation is one of those well known technology companies that a lot of investors have written off over the years as “old technology,” says Chuck Carlson in DRIP Investor.

But, there’s new leadership at Cisco Systems (CSCO), which should be a positive catalyst for the networking stock.

After 20 years, John Chambers recently stepped down as the CEO of Cisco Systems. His replacement is Chuck Robbins, head of Cisco’s global sales and long-time Cisco employee.

Robbins said that he will stress “operational rigor,” which usually means a flatter organization, with fewer people at the top, and probably fewer people overall working at Cisco.

But jump-starting growth at such a big firm—annual revenues are around $50 billion—is no easy feat. Fortunately, secular trends exist in the tech and networking space that should help reignite growth.

The continued growth of the Internet of Things continues to bring more connectivity across more products, which should be a big plus for Cisco’s networking products.

Further, the push for greater security works to the firm’s advantage, as does growth in Cloud computing.

The good news for Chuck Robbins and others hoping for a turnaround is that the firm’s balance sheet—with more than $60 billion in cash and investments—offers plenty of firepower for change.

The big cash position also lends support to the dividend. The quarterly payout has increased nearly four-fold since being initiated in 2011 and further increases are likely.

The stock, trading at just 11 times fiscal 2016 earnings estimate of $2.30 per share, is a buy at current prices. Cisco offers an excellent value proposition in a stock positioned to beat Wall Street’s rather mundane expectations.

Mid-single-digit revenue growth, a cash-loaded balance sheet, a dividend yield of more than 3%, and a rising earnings stream should be more than enough to push these value shares higher over time.

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