Cisco May Boost Its Dividend, But Should You Buy The Stock?
Aug. 1 2011 - 9:39 am
By ERIC SAVITZ
Will Cisco Systems give in to Street pressure and boost its dividend payout?
RBC Capital analyst Mark Sue thinks that is a distinct possibility. In a research note this morning, he asserts that Cisco could boost the payout to about 2.2% from the current 1.5% level at the company’s upcoming analyst meeting in September. But he also sees continued struggles ahead, and cautions that consensus estimates could move lower after the company reports financial results next week.
“Our view is that things are still under disarray internally as Cisco works to stem market share loss and reorganize, while laying off employees by the thousands,” he writes. “If anything, the demand environment may slow for Cisco following its fiscal year end.”
Meanwhile, he asserts that while the company compiled a long list of businesses to exit in order to focus on its core markets, the company after much back and forth is still debating which units to keep and which to sell or close.
“All of the internal distractions at Cisco are the primary reason behind Cisco’s lack of competitive products and share loss, in our view,” he writes. “Cisco is revamping its switching products and doing what it can in routing, but in most situations Cisco has become dis-intermediated by more nimble players. Channel fatigue and low morale may also impact Cisco’s ability to reclaim lost share. Opex management and cost cutting may stabilize pretax margins at 25–26% but as Cisco reinvests in [sales and marketing] to stem share loss, current opex reduction plans may only provide a temporary lift.”
Sue maintains his Underperform rating and $14 target price on the stock. “At 10x our CY12 EPS of $1.65, Cisco’s valuation is un-compelling relative to large cap tech,” he contends. “Cisco is trying many tactical things to fix its strategic errors but it’s going to take time for the situation to recover.”
http://blogs.forbes.com/ericsavitz/2011/08/01/cisco-may-boosts-its-dividend-but-should-you-buy-the-stock/?partner=yahootix
