The Bullish and Bearish Case for Cisco in 2016

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Now that 2015 has ended and 2016 has started off on a rough footing, 24/7 Wall St. wanted to see what the strategists and analysts on Wall Street expect for the stock market and key stocks this year. It turns out the bull market’s charge was interrupted in 2015 as the Dow Jones Industrial Average closed out the year at 17,425.03, down -2.2% for the year.

While the index performance does not account for individual stock dividends, shares of Cisco Systems Inc. (NASDAQ: CSCO) ended 2015 at $27.16, for a total return of 3.09%, if you include its dividend adjustments.

It is too soon to call the rocky start of 2016 an end to a bull market that would otherwise be about seven years long. After all, investors have a track record that is now for longer than four straight years of buying every single dip. So, what lies ahead for Dow component Cisco Systems in 2016?

For the year ahead, Cisco’s consensus analyst price target from Thomson Reuters was $30.63. If the analysts are correct, the expected total return would be 15.87%, if you include its dividend yield of 3.09%. Cisco shares were down under $26.00 in the first week of 2016 as the selling pressure in the stock market remained.

Cisco made it on the list of the 2016 Dogs of the Dow. Merrill Lynch even has it featured positively as cash rich and dividend strong, and Deutsche Bank has Cisco as a top tech theme stock for 2016.


Cisco has been continuing with its plans for bolt-on acquisitions. The $700 million buyout of Acano was one of the larger deals, but Cisco does these almost monthly. There had been some thought that investors might pressure Cisco to make a big acquisition, but its new management seems more interested in maintaining the bolt-on M&A strategy. If Cisco does move for a larger deal, it would likely have a data security and cybersecurity theme.

Analysts gave a mixed view after Cisco’s last earnings report in 2015. One effort that has not gotten enough attention yet is a partnership with Apple Inc. (NASDAQ: AAPL). This move is expected to ultimately broaden Apple’s presence in enterprises and businesses, and of course any company (even Cisco) loves having its name tied to the likes of Apple. What may be even a bigger return than the Apple effort is an expanded effort in China that was announced last summer with a whopping $10 billion investment.

Another driving force for Cisco is that it still has room to make dividend hikes, even after already being in the Dogs of the Dow for 2016. Cisco is also a perpetual buyer of its own stock, having spent more than just a handful of companies in history buying back its shares.

There is also a somewhat bearish case for Cisco. It was pressured in the past over NSA technology ties, and the world of snooping is just not over (and may never be over). Hacking is always a risk, considering that Cisco sold much of the technology that powers global data communications and is deep into data center operations now.

Cisco is no longer under regular oversight John Chambers. He is still the executive chairman and a member of Cisco’s Acquisition Committee, but now Charles (Chuck) Robbins is the chief executive officer. Robbins almost immediately made his own management shuffle into a new structure after taking the helm. That is good for a vision ahead, but it comes at a time when the investment community was somewhat comfortable with Cisco’s position, and now at a time where the global growth markets are slowing.

One feather in the cap is here for long-term investors is that Cisco remains one of the 24/7 Wall St. top 10 stocks to own for the next decade.