Cisco just printed a double beat and guided higher, reminding the market why it’s a core “value-tech” compounder:
- Q1 FY26: Revenue +7.5% YoY to ~$14.9B; EPS beat; 13th straight outperformance vs. Street continues.
- Mix: Networking still the engine ($7.8B, +15% YoY) as AI/datacenter build-outs lift switching & routing
- Orders: Product orders +13% (Americas +16%; Service Provider/Cloud >+40%).
- Guide: FY26 rev ~$60.6B (+~7%), EPS >$4.10; current-quarter growth ~8%.
- Valuation: ~17–18x fwd P/E, ~2.3% dividend yield, fortress balance sheet.
Rating: BUY. A steady, lower-beta way to play AI infrastructure and enterprise networking without paying nosebleed multiples.
Technical Analysis
- Current Price: ~$73.99
- Accumulation Zone: $70.23 – $68.40 (Fib 0.50–0.705 + prior demand)
- Secondary Support: $65.76 (Fib 1.00)
- Invalidation: Weekly close < $65.76
- Resistance / Targets: $74.70 → $85.13
Read: After a post-earnings spike, a pullback into $70–68 is healthy; hold above $68 keeps higher-low structure intact. Reclaim/hold >$74.70 opens path toward $85 extension.
Trading Setup
DCA Plan:
- 40% at $70.3–69.2
- 40% at $69.2–68.4
- 20% “last bid” near $66–66.5
Stop: Weekly close < $65.76 Take Profit:
- TP1: $74.70
- TP2: $85.13 (trail stops for possible over-shoot)
Income idea: Sell cash-secured puts at $70/$67.5 (30–45 DTE) to enter on discount; if assigned, sell covered calls at $75–85.
Why It Works (Thesis Pillars)
1. AI Datacenter Tailwinds (Without the Hype Multiple)
Hyperscaler capex growth boosts switching/routing demand. Cisco isn’t ANET, but the market is big enough for both; diversified customer base reduces single-vendor risk for buyers.
2. Orders & Geography Support Durability
Americas (≈60% of rev) growing faster (+9% rev; +16% product orders). With U.S. datacenter buildout well ahead of EU/Asia (energy/regulatory advantages), Cisco’s near-term skew to NA is a feature.
3. Operating Discipline → EPS Compounding
Opex +~3% vs. rev +7.5% drove op-margin expansion; buybacks add a small EPS tailwind. A ~10% EPS CAGR looks achievable with high-single-digit sales plus modest margin/repurchase lift.
4. Shareholder Return + Balance Sheet
Dividend ~2.3% with room to grow; strong net cash/liquidity supports M&A, R&D and ongoing returns.
5. Valuation = Downside Cushion
At 17–18x fwd EPS, CSCO trades at a discount to many AI beneficiaries while still linked to the same secular spend. You’re paying a market-multiple for a business with better visibility and cash returns.
Valuation & Scenarios
| Metric | Now / FY26 Guide |
|---|---|
| Rev Growth | ~7% (FY26) |
| EPS | > $4.10 |
| Fwd P/E | ~17–18x |
| Div Yield | ~2.3% |
Base case (12–18m): Hold/accumulate on dips → multiple stable, EPS tracks guide → mid-$80s fair value.
Upside: Orders stay >10%, DC build accelerates, Security/Services re-accelerate → 19–20x on $4.30–4.40 EPS → $82–88.
Downside: Hyperscaler digestion or macro capex pause → mid-teens P/E on $4.00 EPS → $60s (buffered by dividend + valuation).
Risks
- Share loss vs. high-growth peers (e.g., ANET) in certain DC footprints.
- Capex cycles (hyperscaler digestion) can whipsaw orders.
- Security/Software execution uneven could cap multiple.
- Export/geo risks (China) and supply-chain shocks.
Mitigants: Broad portfolio, sticky enterprise base, services annuity, balance-sheet strength, ongoing cost control.
Conclusion
Cisco is a cash-rich, shareholder-friendly way to participate in the multi-year networking/AI infrastructure cycle.
You’re not betting on blue-sky growth; you’re buying steady EPS compounding at a fair price with a dividend while the AI buildout lifts the core.
Verdict: BUY. Accumulate $70–68, target $85, cut on weekly close < $65.76.
Disclaimer
Gotrade is the trading name of Gotrade Securities Inc., registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
