(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Cisco Systems, Inc.'s (CSCO) stock is up almost 25% in 2018, and it looks like shares are going even higher. Analysts have been boosting their earnings and revenue estimates, and as a result, increasing the price targets. Now, analysts see shares rising 7% from its current stock price around $47.75.
The company reported strong fiscal fourth-quarter 2018 results. Earnings were 2% better than estimates, while revenue was almost 1%. The company also issued strong guidance for the fiscal first quarter of 2019.
Price Targets Increase
Analysts now see the networking company's stock rising to an average price target of almost $51 from previous targets of $39.20, at the start of the year. That is an increase of almost 30%. The last time the stock hit such lofty levels was in the year 2000.
The increasing price targets follow the company’s strong guidance. It has resulted in analysts boosting their earnings and revenue estimates for fiscal 2019 and 2020. Analysts now see earnings growing by almost 15% to $2.99 per share in 2019, up from a prior forecast of $2.91. Fiscal 2020 estimates rise and are forecast to grow by 9% to $3.25 from previous estimates of $3.17. (For more, see also: Why Cisco's Hot Stock May Cool Off Fast.)
The outlook for revenue improves, with 2019 forecasts seen growing by more than 4% to $51.5 billion from prior estimates of $50.7 billion. Meanwhile, revenue estimates for 2020 show an increase of almost 3% to $52.9 billion from previous estimates of $52.5 billion.
Valuation Gets Cheaper
Because of the rising earnings estimates, the stock's one-year forward price-to-earnings ratio falls to 14.6 despite the higher stock price. That is down from a high of almost 16 at the start of the year.
The technical charts also suggest the stock's rise. Shares broke out in the middle of August after the strong results, rising above technical resistance at $47. Should the stock continue to rise, the next level of technical resistance comes around $51.
Cisco's stock has had a very strong 2018 and it looks like it may be about to get even stronger. Should the company continue to deliver better than expected results and guidance, the stock may have even further to climb in the future.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.