After what has been a grueling couple of years for one of the biggest of the Silicon Valley mega-tech stocks, it certainly looks like Cisco Systems Inc. (NASDAQ: CSCO) has turned things around in a dramatic fashion. The company reported solid earnings for the quarter and raised the dividend paid to shareholders as well. A new research report from RBC makes the case that three stocks in the technology supply chain may see some positive benefit from the uptick at Cisco.
While it can sometimes be a curse for a company to have too much business, a nice a consistent percentage from a large company like Cisco is very good for smoothing out earnings. With overall information technology budgets expected to be up only 2% to 3% for 2015, Cisco solid results are encouraging.
The three companies that RBC sees benefiting the most from the Cisco results and guidance are Amphenol Corp. (NYSE: APH), Celestica Inc. (NYSE: CLS) and Flextronics International Inc. (NASDAQ: FLEX).
RBC analysts see this company benefiting from the Cisco strength as about 4% of total sales are to Cisco. Amphenol is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. Amphenol designs, manufactures and assembles its products at facilities in the Americas, Europe, Asia, Australia and Africa and sells its products through its own global sales force, independent representatives and a global network of electronics distributors.
With 16% of sales in the information technology/datacom field, and first quarter guidance for demand to moderate, the RBC analysts are modeling a more conservative decline compared to Cisco’s. They feel that is a positive for Amphenol, and so it is one of the firm’s top picks this year.
Amphenol investors are paid a small 0.9% dividend. RBC has a $58 price target on the stock. The Thomson/First Call consensus price target is at $56.71. Shares closed trading on Thursday at $56.
With more than 10% of its total sales to Cisco via routers, the positive results at Cisco bode well for Celestica. The company provides supply chain solutions to original equipment manufacturers and service providers in the communications, consumer, enterprise computing, industrial, aerospace and defense, health care, solar, green technology, semiconductor equipment and other end markets in the Americas, Asia and Europe. The RBC team feels that the overall Cisco results and the forward guidance are above the current expectations at Celestica.
Celestica is rated Sector Perform at RBC. The firm has an $11 price target, lower than the consensus target of $11.80. Note that shares closed trading Thursday at $11.88.
Flextronics is rated Outperform at RBC and looks to be a winner from the Cisco gains. This leading end-to-end supply chain solutions company delivers design, engineering, manufacturing and logistics services to a range of industries and end-markets, including data networking, telecom, enterprise computing and storage, industrial, capital equipment, appliances, automation, medical, automotive, aerospace and defense, energy, mobile, computing and other electronic product categories.
Flextronics is an industry leader with more than $26 billion in annualized sales. The RBC analysts see the improvements at Cisco as a positive at the company, which does annually between 6% and 8% of sales via switches, routers and infrastructure equipment with Cisco.
The RBC price target is $12 and the consensus is at $12.29. The stock closed Thursday at $12.14 a share.
The growth and turnaround at Cisco over the past year is an overall positive for the industry. Investors looking to reap some ancillary benefits from the solid report may want to buy one of these stocks RBC sees as benefiting.