Shares of networking equipment and software provider Cisco Systems (NASDAQ: CSCO – $45.44) are ticking higher by 2.6% after reporting better-than-expected results for the first quarter of fiscal 2019. Revenue of $13.1 billion grew 8% year over year – also above expectations – with product sales up 9%, service revenue 3% and product orders advancing by 8%. Adjusted earnings per share came in at $0.75, three cents more than forecast and 23% above the prior year’s tally of $0.61.
Looking at Cisco’s individual businesses: Infrastructure Platforms grew revenue 9% in the quarter. Switching demand has been healthy thanks largely to blockbuster sales of Catalyst 9000 switches. The company recently launched the 9200, which extends intent-based networking (software that identifies services to run and how the network should configure accordingly) to entry-level customers, and the 9800, a wireless controller that can be used for enhanced security automation and analytics. Too, it unveiled the Nexus 400-gig switch, which aims to help service providers and web-scale content players increase bandwidth and scale. On the software side, the Applications unit increased its top line 18%, thanks to Unified Communications and TelePresence. Also contributing to growth was the newly acquired AppDynamics which uses application monitoring and analytics to improve customers’ business outcomes and agility. Meanwhile, the Security division posted double-digit revenue growth, as the need for secure virtualized infrastructure is increasing. The recent $2.35 billion cash purchase of Duo Security is encouraging. That outfit provides cloud-based identity solutions for easier security access and multi-factor identification.
Traders were pleased with Cisco’s recent results as it seems that the company’s customers are realizing the value of integrating various networking functions over decoupled, open components combined to form a network. Cisco is forecasting fiscal second-quarter revenue to grow 5%-7% year over year, while earnings per share should land between $0.71 and $0.73, in line with Street views of $0.72. For the full year, CSCO should earn $3.04 per share compared to last year’s $2.59 and consensus for fiscal 2020 is $3.31. I believe Cisco’s value is attractive and still think there is some room to run for these high-quality shares. Positions also provide income investors with a 3% annualized yield.