Aleck Boyd Bernadette Smith Dario Munoz Poletti Sara Specht

Transcription

1 Aleck Boyd Bernadette Smith Dario Munoz Poletti Sara Specht

2 Outline Description of the Company Investment Thesis Porter s 5 Forces SWOT Analysis Competitive Analysis Historical Financial Analysis/Company Comparable Forecasting Relative Valuation Conclusion

3 Description of the Company Founded in 1984 and is headquartered in San Jose, California. Since, this time Cisco has grown to become one of the world s largest Networking Technology companies, with more than 70,000 employees and 70,000 partnerships worldwide and currently $49 Billion in Revenue for FY 15. Designs, manufactures, and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide. Provides switching products which include fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points, and servers; and nextgeneration network routing products that interconnect public and private wire line and mobile networks for mobile, data, voice, and video applications. The company offers service provider video infrastructure, including set-top boxes, cable/telecommunications access products, and cable modems; and video software and solutions.

4 Description of the Company The firm provides collaboration products comprising unified communications products, conferencing products, telepresence systems, and enterprise mobile messaging products; data center products, such as blade, rack, and modular servers, fabric interconnects, software, and server access virtualization solutions; security products, including network and data center security, advanced threat protection, web and security, access and policy, unified threat management, and advisory, integration, and managed services; and other products, such as emerging technologies and other networking products. Further, Cisco offers wireless products consisting of wireless access points; network managed services; and standalone, switch-converged, and cloud managed solutions. Additionally, Cisco provides technical support services and advanced services. The company serves businesses of various sizes, public institutions, governments, and communications service providers. Cisco Systems, Inc. sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors.

5 60 + Countries 1. US remains the biggest segment. 2. Followed by: Europe, Middle East, and Africa. 3. Followed by: Asia Pacific, Japan, and China. 4. Americas.

6 Cisco in a Growing Market

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8 Cisco Leadership

9 Fog Computing: Personal Cloud Each user has their own private cloud leading to better security of data and faster access Faster communication between devices from the shorter distance between cloud and user More Secure allowing users to limit access to their personal cloud

10 Cisco & Big Data Data Center Management Simplifying and Unifying Data Single platform Automation Security Cyber Threat Defense Virtualization Energy Management Software Cisco Par stream

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12 Cisco Connected Health Care-at-a-Distance and Clinical Workflow solutions Continuing Health and Business Collaboration Compliance and Medical Device Management Solutions Services for connected Health Partner Health care solutions Medical-Grade Network

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15 Smart and Connected Communities Remote expert smart solution for Government services Lighting Parking Spaces Residential Safety and Security Traffic Wifi

16 Deutschland Digital Program Cisco and Berlin s Senate department of Economics enter into cooperation on a Smart City Telemedicine: remote communication and the diagnosis of patient across digital platforms. Security and network infrastructure improvements. Intelligent networking infrastructure for the city of the future.

17 Cisco & Rio de Janeiro In 2016, the eyes of the world will look toward Rio during the Summer Olympics; records will be broken and memories made, all with the help of the Cisco network. And, long after the stadiums have emptied, Cisco will remain to help build a better future for Brazil. Connecting communities to better education and pairing students and teachers through the latest technology. Connecting business leader to the Internet of Everything, helping them to reinvent their businesses to achieve the unimaginable.

18 Cisco & Rio de Janeiro Cisco will be providing the network and server equipment. All network equipment infrastructure, including fixed and mobile broadband equipment, IP routers, network security equipment, data center and network management systems will be supplied by Cisco. The manufacturer will also provide data center servers, including blade servers and racks based on its Unified Computing System. You can delay a rocket launch because the IT is not working, but you can t delay the Olympic Games Jean Benoit Gauthier, Technology & Information Director, Olympic Committee

19 Cisco & Rio de Janeiro Investing in Marketing Technology Cisco is using a collection of marketing technologies which tags customer data and pulls it into the database. Some of the tools include: A combination of big data solutions and CRM solutions such as Salesforce Marketing automation platform which Cisco has installed for the first time last year Social media tools which can help find leads before they have come into contact with Cisco directly Linkedin being an important element With Cisco s partnership we will make the Rio 2016 Olympic Games the most connected Games ever. Rio 2016 President Carlos Arthur Nuzman

20 Investment Thesis Cisco has had stable revenue growth historically. The company is a leader in the majority of the market segments they serve. With their large market share, stable historical PE ratio within the reasonable range of 12-18, and growing dividends per share are determining factors for our recommendation. We have determined that Cisco is a growing and stable company under their new leadership with the opportunity for advancement into 21st century networking technology. Following a detailed analysis of their future growth and innovations, we conclude that Cisco is a strong buy for our portfolio due to a modest undervaluation and encouraging forecasted dividend yield under conservative assumptions.

21 Year Stock Performance 4/10/15 4/24/15 5/8/15 5/22/15 6/5/15 6/19/15 7/3/15 7/17/15 7/31/15 8/14/15 8/28/15 9/11/15 9/25/15 10/9/15 10/23/15 11/6/15 11/20/15 12/4/15 12/18/15 1/1/16 1/15/16 1/29/16 2/12/16 2/26/16 3/11/16 3/25/16 4/8/16 Cisco ^SPX - Share Pricing NasdaqGS:CSCO - Share Pricing ^SP Share Pricing NYSE:JNPR - Share Pricing

22 Threat of New Competition Barriers to entry are relatively low Threat level: Medium Supplier Power Strategic alliance partners could have a material adverse effect around the world. Contract are signed in advance CSCO receives certain components from sole suppliers. Threat level: Medium Competitive Rivalry The emergence of International firms, specially Chinese firms: Huawei & ZTE Threat level: Medium Threat Substitute Products Substitutes are available from other big competitors around the world Threat level: Medium Buyer Power Customers include businesses of all sizes, public institutions, governments and communications service providers. Meaningful customer switching costs Threat level: Medium Porter s Five Forces Analysis

23 Strengths Diversified portfolio: broad product lineup Market Share Weakness Difficult restructuring and consolidating Opportunities Emerging markets Product Leadership High demand for data center solutions and the migration to cloud networking Threats Political risk Currency risks Rapid change, converging technologies, and a migration to networking and communications solutions SWOT Analysis

24 Competitive Analysis: Credit Cisco has the lowest probability of default compared to it s competitors:.05%

25 Competitive Analysis: Market Share Cisco has is a market leader operating in more than 60 countries around the world maintaining a market share above 80% in the last five years Cisco (CSCO) Jupiter Networks (JNPR) Arista Networks (ANET)

26 Competitive Analysis: SG&A Cisco is decreasing SG&A expenses relative to sales, the SG&A/Sales ratio decrease from 27% in 2011 to 24% in 2015 showing positive signs of efficiency. Cisco (CSCO) Jupiter Networks (JNPR) Arista Networks (ANET)

27 Competitive Analysis: EBIT & NIM Cisco has the higher EBIT and Net Income Margin compared to it s closest competitors in Cisco 23% EBIT margin outperforms the 21.9% of BRCD Cisco s Net Income Margin of 18.27% outperforms the 15.04% of BRCD Cisco's outperformance of Brocade indicates that a greater percentage of revenue is available to flow toward bottom line profits, free cash flow that supports the firms intrinsic value, and back to investors in the form of dividends.

28 Competitive Analysis: P/E /20/15 10/27/15 11/3/15 11/10/15 11/17/15 11/24/15 12/1/15 12/8/15 12/15/15 12/22/15 12/29/15 1/5/16 1/12/16 1/19/16 ^SPX - P/E NasdaqGS:CSCO - P/E NYSE:JNPR - P/E NasdaqGS:BRCD - P/E NYSE:MSI - P/E NYSE:ANET - P/E NasdaqGS:INFN - P/E NasdaqGS:ARRS - P/E NYSE:PANW - P/E 1/26/16 2/2/16 2/9/16 2/16/16 2/23/16 3/1/16 3/8/16 3/15/16 3/22/16 3/29/16 4/5/16 4/12/16 4/19/16 Cisco P/E ratio has been within the reasonable range of 12 to 18 for the past 6 months. Volatility in P/E ratio leads us to use 6 month range. Notice the large disparity of companies while Cisco stays within the range.

29 Historical Financial Analysis Growing Revenues. NOPAT growing faster than EBIT. Dividends Per Share growing faster than Earnings Per Share. Growing MVA expresses how genuine value creation occurred.

30 EBIT & NOPAT Cisco EBIT & NOPAT are in an uptrend from 2011 to 2015

31 Profitability, CAPEX & EVA ROIC continues to beat ROA while slightly behind ROE. ROE shows us the return generated per dollar of equity. Net PP&E is relatively non-existent, while Total Invested Capital continues to grow showing that Cisco is more NOWC intensive.

32 Profitability, CAPEX & EVA MVA is in an upward trend expressing a higher value of capital contributions to the firm by shareholders. The upward trend showing how genuine value creation increases from 2012 to Cisco's 2015 decrease in free cash flow signals that there is less free NOPAT to pay out to investors because of greater changes in Total Invested Capital, mostly short-term investments (NOWC).

33 Cisco vs. Juniper Networks Cisco's has a higher Operating Profit Margin than JNPR, signaling that there is more cash available to flow toward bottom line profits, free cash flow that supports the firm's intrinsic value, and back to the investors in the form of dividends. Cisco has higher Net Profit Margins than JNPR every year indicating profits are flowing to the bottom line more efficiently.

34 Cisco vs. Juniper Networks Total Invested Capital per share: Cisco is investing more on a per share basis every year. NOPAT per Share: Cisco has a higher NOPAT per share from 2012 to JNPR has a higher tax rates every year showing Cisco's tax advantage.

35 Cisco vs. Juniper Networks Cisco is outperforming Juniper from 2011 to Cisco's performance above Juniper, shows that Cisco is generating more net income per dollar of assets. Cisco's outperformance of Juniper from 2011 to 2015 illustrates that Cisco is expressing more dollars of profit relative to the capital contributions by shareholders.

36 Forecasting: Income Statement Total Revenue Growth: The S&P is projecting total revenue increase of 3.1% in 2016, 2.5% in 2017, and 4.3% in EBIT: Analysts at S&P predicted 30.26% in 2016, 30.16% in 2017, and 30.59% in Dividend/share: Analyst's reports state that Cisco will keep their dividend increase from $.92 in 2016, $1.01 in 2017, $1.17 in 2018, $1.29 in 2019, and $1.36 in 2020.

37 Forecasting: Balance Sheet Net PPE: Due to the management plan of small acquisitions as a growth strategy, the NET PP&E is expected to slowly increase at 7% in 2016 to 9% 2020.

38 WACC Beta: adjusted from the historical 1.3 to 1.2 due to an average among analyst who predict a lower beta of 1.1 for the stock. Note: that even with a higher beta than analysts, the stock will still appear undervalued.

39 Value Creation & DCF Intrinsic Value Model Under conservative assumptions and implementing a margin of safety the stock appears to be undervalued by 10.9% Stock Price CAGR: 5.6%

40 Value Creation & DCF Intrinsic Value Model EVA: EVA is forecasted to increase in 2016 to 2020 signaling more economic profit is expected to be created under conservative assumptions. ROIC-WACC spread: The forecasted ROIC greater than the WACC of 9.496% illustrates that Cisco is still able to create value. The forecasted ROIC is steady over time at 16.7%, showing they have the ability to generate profit on investments.

41 Relative Valuation Dividend yield: Cisco's dividend yield remains fairly constant and above our 2% benchmark from 3.2% in 2016 to 3.7% in 2020, which is good based on our preference for strong dividend payers. Note: the stock price CAGR+ Dividend yield is encouraging: 5.6% + 3.2% = 8.8%

42 Relative Valuation Relative Valuation remains modest in the forecast years, suggesting the pro forma modeling assumptions are not excessively optimistic.

43 Conclusion Positive innovation and reaction to new technologies. Large market share & presence in International markets. Lowest probability of default among competitors:.05%. Higher EBIT and Net Income Margin than competitors in Positive Historical Data: Growing revenues, EBIT, NOPAT and DPS. Forecasted dividend yield above 2% benchmark: 3.2% in 2016 to 3.7% in Forecasted P/E within the reasonable range of 12 to 18. Encouraging potential stock price + Dividend Return: 8.8%. Recommendation: BUY