Insights

• Cisco's profitability remains strong, with gross profit margin, net profit margin, and EBITDA margin significantly higher than industry averages, but net income is declining.
• The company's liquidity position is concerning, with a current ratio below 1 and decreasing working capital.
• Long-term debt has increased significantly, raising concerns about the company's long-term solvency, although the debt to equity ratio is still below the industry average.
• The success of the Splunk acquisition is crucial for improving the company's financial performance and generating future growth.
• Cisco needs to focus on improving its cash flow generation and managing its increasing debt obligations to maintain financial stability.

Analysis

• Revenue - Revenue has been relatively stable, with a slight decrease in year-over-year growth, indicating potential challenges in expanding market share. - The company's revenue growth is decelerating compared to its 5-year CAGR, suggesting a need for new growth strategies. - Despite the stable revenue, Cisco's sales/revenue is significantly higher than the industry average, reflecting its market position.
  • Profitability
    • Gross profit margin, net profit margin, and EBITDA margin are significantly higher than the industry averages, indicating superior profitability.
    • However, net income has been declining, raising concerns about overall financial performance.
    • The company's profitability ratios are trending downward, suggesting a need for improved cost management and operational efficiency.
  • Liquidity
    • The current ratio is below 1, indicating potential liquidity issues.
    • The quick ratio is also below the industry average, reinforcing liquidity concerns.
    • The company's working capital has decreased, further impacting short-term liquidity.
  • Solvency
    • Long-term debt has increased significantly, raising concerns about the company's long-term solvency.
    • The total debt to total equity ratio is below the industry average, suggesting a relatively conservative capital structure.
    • The debt / EBITDA ratio is significantly lower than the industry average, indicating a strong ability to service debt.
  • Operational Efficiency
    • Inventories have decreased, suggesting improved inventory management.
    • Selling, general, and administrative expenses have been increasing, potentially due to increased marketing or administrative activities.
    • The company's return on assets and equity are significantly higher than the industry averages, indicating efficient asset utilization.
  • Cash Flow Analysis - Net operating cash flow has decreased, indicating a decline in cash generated from core business operations. - Free cash flow to equity has also decreased, raising concerns about the company's ability to generate cash for shareholders. - Total capital expenditure has increased, reflecting higher investments in fixed assets.
  • Risk Factors
    • The low current ratio and increasing debt levels are potential red flags that need to be monitored.
    • The company's ability to generate sufficient cash flow to service its increasing debt obligations is crucial for maintaining long-term solvency.
    • The success of the Splunk acquisition in generating revenue and synergies will be a key factor in improving the company's financial performance.
  • Future Outlook
    • The company's liquidity position needs to be monitored closely in the upcoming quarters, given the low current ratio and decreasing working capital.
    • The company's ability to generate sufficient cash flow to service its increasing debt obligations is crucial for maintaining long-term solvency.
    • The success of the Splunk acquisition in generating revenue and synergies will be a key factor in improving the company's financial performance.

Benchmarks (as of 2025-03-14)

• Performance Comparison:

  • Cisco Systems, Inc. (CSCO) has shown mixed performance compared to the Technology Select Sector SPDR Fund (XLK). Over the past year, CSCO has outperformed XLK, with returns of 26.67% versus 4.24%, respectively. However, over longer periods (2 and 3 years), CSCO has underperformed XLK. For example, over the last three years, CSCO returned 19.09% compared to XLK's 45.41%.
  • The consistency of CSCO's performance relative to XLK varies. In the short term (YTD, 1 Week, 1 Month, 3 Months, and 6 Months), CSCO has generally outperformed XLK. However, the longer-term data indicates underperformance, suggesting that CSCO's recent gains have not fully compensated for earlier periods of weaker performance.

• Risk and Return Analysis:

  • The annualized returns show that CSCO has a higher return over the past year (26.67%) compared to XLK (4.24%). However, over 2 and 3 years, CSCO's annualized returns are lower than XLK's. For instance, the 3-year annualized return for CSCO is 6.0%, while for XLK it is 13.29%.
  • Analyzing the annualized volatility, CSCO's volatility has generally been lower than XLK's. For example, as of March 14, 2025, CSCO's volatility is 18.73%, while XLK's is 28.27%. This suggests that CSCO's price movements are less erratic than those of the broader technology sector represented by XLK.
  • The maximum drawdown for CSCO was -36.68% on 2022-10-12, while for XLK it was -33.56% on the same date. This indicates that CSCO experienced a slightly larger peak-to-trough decline than XLK during that period, suggesting a higher risk profile during significant market downturns.

• Risk-Adjusted Performance:

  • The Sharpe Ratio, which measures risk-adjusted return, has generally been lower for CSCO compared to XLK. This suggests that XLK has offered better risk-adjusted returns over the analyzed period. As of March 14, 2025, the Sharpe ratio for CSCO is 1.3, while the Sharpe ratio for XLK is 0.25.
  • The Beta value for CSCO has consistently been below 1, indicating that the stock is less sensitive to market movements compared to XLK, which has a Beta above 1. As of March 14, 2025, the beta for CSCO is 0.74, while the beta for XLK is 1.59. This suggests that CSCO is a less volatile investment relative to the technology sector.

• Overall Assessment:

  • CSCO has shown strong recent performance, outperforming XLK in the short term (YTD, 1 Week, 1 Month, 3 Months, 6 Months, and 1 Year). However, its longer-term performance (2 and 3 years) lags behind XLK.
  • CSCO generally exhibits lower volatility compared to XLK, as indicated by its annualized volatility and Beta values. However, during market downturns, CSCO has experienced larger drawdowns than XLK.
  • XLK has generally offered better risk-adjusted returns compared to CSCO, as indicated by its higher Sharpe Ratio.
  • Recent trends indicate that CSCO has been less sensitive to market movements than XLK, as evidenced by its lower Beta value.
  • Investors should consider CSCO's recent outperformance and lower volatility, but also be aware of its underperformance over longer periods and its potential for larger drawdowns during market downturns.

Peers Price History(as of 2025-03-14)

• Performance Comparison:

  • Cisco Systems, Inc. (CSCO) has shown mixed performance compared to its peer companies. Over the past year, CSCO has outperformed both Motorola Solutions, Inc. (MSI) and Arista Networks, Inc. (ANET), with a return of 26.67% compared to 24.13% for MSI and 15.46% for ANET. However, over longer periods (2 and 3 years), CSCO has significantly underperformed both MSI and ANET. For example, over the past three years, CSCO's return was 19.09%, while MSI's was 90.96% and ANET's was 168.97%. This suggests that while CSCO has had a strong recent performance, its longer-term growth has lagged behind its peers.

• Risk and Return Analysis:

  • The annualized returns reflect the same trend as the historical performance. CSCO's one-year annualized return of 26.67% is better than MSI and ANET. However, its two-year and three-year annualized returns are significantly lower.
  • In terms of annualized volatility, Arista Networks, Inc. (ANET) generally exhibited the highest volatility, with values frequently above 40%, and reaching as high as 88.27% in Q1 2025. Motorola Solutions, Inc. (MSI) generally had the lowest volatility, with values typically below 30%. Cisco Systems, Inc. (CSCO) had volatility levels between those of MSI and ANET.
  • Cisco Systems, Inc. (CSCO) experienced a maximum drawdown of -36.68% on 2022-10-12. Motorola Solutions, Inc. (MSI) experienced a maximum drawdown of -27.23% on 2022-06-16. Arista Networks, Inc. (ANET) experienced a maximum drawdown of -40.26% on 2025-03-10. This indicates that ANET was the riskiest of the three, as it had the largest percentage decline from its peak, while MSI was the least risky.

• Risk-Adjusted Performance:

  • Motorola Solutions, Inc. (MSI) generally had the highest Sharpe ratios, often exceeding 1.0, indicating better risk-adjusted returns compared to Cisco Systems, Inc. (CSCO) and Arista Networks, Inc. (ANET). Arista Networks, Inc. (ANET) also had relatively high Sharpe ratios. Cisco Systems, Inc. (CSCO) had the lowest Sharpe ratios, frequently negative, indicating poorer risk-adjusted returns.
  • The beta values for Cisco Systems, Inc. (CSCO) and Motorola Solutions, Inc. (MSI) were generally below 1, indicating lower volatility than the market. Arista Networks, Inc. (ANET) had beta values consistently above 1, indicating higher volatility than the market.

• Overall Assessment:

  • Cisco Systems, Inc. (CSCO) has shown strong recent performance, outperforming its peers over the past year. However, its longer-term performance has lagged behind Motorola Solutions, Inc. (MSI) and Arista Networks, Inc. (ANET). CSCO has lower volatility than ANET, but higher volatility than MSI. Its Sharpe ratios are generally lower than its peers, indicating poorer risk-adjusted returns. CSCO's beta is below 1, indicating lower sensitivity to market movements compared to ANET, which has a beta above 1.
  • A key trend is the recent increase in volatility for all three stocks in Q1 2025.

Peers Fundamentals(as of 2025-01-31)

1. Market Position and Size:

   • Cisco Systems, Inc. (CSCO) has a significantly larger market capitalization of $240,686.54 million compared to Motorola Solutions, Inc. (MSI) at $69,772.99 million and Arista Networks, Inc. (ANET) at $105,316.13 million, indicating a dominant market position.
   • CSCO's substantial market cap is supported by its higher revenue ($54,176 million) and EBITDA ($14,759 million) compared to MSI (Revenue: $10,817 million, EBITDA: $3,092 million) and ANET (Revenue: $7,003.15 million, EBITDA: $3,006.61 million).
   • CSCO's holds a dominant market position within its peer group due to its significantly larger size, as reflected in its market capitalization, revenue, and earnings.

2. Profitability and Efficiency:

   • CSCO's Gross Profit Margin of 63.3% is greater than MSI's 49.66% but slightly less than ANET's 64.13%. All three companies are significantly above the industry average of 27.83%.
   • CSCO's EBITDA Margin of 27.24% is less than MSI's 28.58% and ANET's 42.93%. All three companies are significantly above the industry average of -30.15%.
   • CSCO's Net Profit Margin of 16.96% is greater than MSI's 14.57% but significantly less than ANET's 40.73%. All three companies are significantly above the industry average of -56.47%.
   • CSCO's efficiency in generating returns is lower compared to its peers, particularly ANET, suggesting that CSCO may not be utilizing its assets and capital as effectively.

3. Financial Health and Stability:

   • CSCO's Current Ratio of 0.87 is less than MSI (1.27) and significantly less than ANET (4.36). It is also less than the industry average of 2.3, indicating a weaker liquidity position.
   • CSCO's Quick Ratio of 0.79 is less than MSI (1.12) and significantly less than ANET (3.69). It is also less than the industry average of 1.61, further supporting the weaker liquidity position.
   • CSCO's Total Debt to Total Equity Ratio of 71.19 is less than MSI (384.67) and greater than ANET (0.6). It is also less than the industry average of 130.55, suggesting a moderate level of debt.
   • CSCO's Debt / EBITDA ratio of 2.1 is slightly greater than MSI (1.94) and significantly greater than ANET (0.0). It is also less than the industry average of 14.64, indicating manageable debt levels relative to earnings.

4. Valuation and Market Perception:

   • CSCO's Price To Earnings ratio of 26.51 is less than MSI (45.27) and ANET (37.51). It is also less than the industry average of 41.88, suggesting potential undervaluation.
   • CSCO's Price to Book Ratio of 5.28 is less than MSI (41.01) and ANET (10.54). It is also less than the industry average of 9.1, further supporting potential undervaluation.
   • CSCO's Price To Sales Ratio of 4.47 is less than MSI (6.6) and ANET (15.28). It is also greater than the industry average of 1.88, indicating a premium valuation based on sales.
   • CSCO's Price to Free Cash Flow of 18.79 is less than MSI (32.7) and ANET (28.65). It is also less than the industry average of 31.57, suggesting undervaluation relative to free cash flow.

5. Cash Flow and Capital Management:

   • CSCO's Net Operating Cash Flow of $13,603 million is significantly greater than MSI ($2,391 million) and ANET ($3,708.24 million), indicating strong cash generation.
   • CSCO's Total Capital Expenditure of $793 million is significantly greater than MSI ($257 million) and ANET ($32.03 million), reflecting higher investment in capital assets.
   • CSCO's Free Cash Flow of $12,810 million is significantly greater than MSI ($2,134 million) and ANET ($3,676.2 million), demonstrating robust free cash flow generation.

6. Growth and Future Prospect:

   • CSCO consistently shows inferior growth compared to its peers in Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, Free Cash Flow, Free Cash Flow Margin, and EBIT Margin.
   • Growth rates have been consistently decreasing over the 5-year period for Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, and EBIT Margin, indicating a deceleration trend.
   • CSCO's most recent year-over-year growth rates are lower than its 5-year CAGRs for Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, Free Cash Flow, and EBIT Margin, further supporting the deceleration trend.

7. Potential for Investment:

   • CSCO presents a mixed investment case. Its strengths include a dominant market position, strong cash flow generation, and potential undervaluation based on earnings and free cash flow.
   • However, its weaknesses include lower growth rates compared to peers, weaker liquidity, and less efficient utilization of resources.
   • Investors should carefully weigh CSCO's strengths and weaknesses in light of its valuation and growth prospects.

8. Key Risks and Considerations:

   • CSCO's lower growth rates compared to peers pose a risk to its long-term market dominance.
   • Its weaker liquidity position could limit its financial flexibility in the face of unexpected challenges.
   • Its less efficient utilization of resources could lead to lower profitability and returns compared to its peers.

9. Overall Assessment:

   • CSCO is a large, well-established company with a dominant market position and strong cash flow generation.
   • However, its lower growth rates, weaker liquidity, and less efficient utilization of resources raise concerns about its long-term prospects.
   • Investors should carefully consider these factors when evaluating CSCO's investment potential.