One good rule of thumb for technology investors is to do exactly the opposite of what the Wall Street “experts” recommend on Cisco Systems Inc. (NASDAQ: CSCO). When they are wildly bullish, the company seems to report a bad quarter, and when they are negative (it never fails), Cisco does what it did this week: report great numbers, give good guidance, raise the dividend and announce a bigger stock buyback.
Investors now are looking to who may benefit from this new strength. A new RBC research report, while acknowledging the very positive quarter, cautions that some of the upside could be coming from Cisco’s emerging business, like cloud hosting, versus the traditional switching and router core business. Still the report cites five Cisco partners that could benefit from the strong earnings.
Amphenol Corp. (NYSE: APH) is one of the top picks this year at RBC, and the analysts see the company benefiting from the Cisco strength, as about 4% of total sales go to the company. 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 also 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.
Amphenol investors are paid a 1.15% dividend. The Thomson/First Call consensus price target for the stock is $55.45. Shares closed Thursday $49.01.
Celestica Inc. (NYSE: CLS) has more than 10% of total sales to Cisco via routers, so the positive results bode well. 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.
Celestica is rated Sector Perform at RBC. The consensus price target is set at $10.75. Shares closed most recently at $9.19.
Flextronics International Inc. (NASDAQ: FLEX) is rated Outperform at RBC and looks to be a winner from the Cisco gains. The company is a leading end-to-end supply chain solutions company that 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 almost $25 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 consensus price target is at $12.82. The stock closed Thursday at $9.97.
Jabil Circuit Inc. (NYSE: JBL) is the ultimate outsourcing stock for technology and more. The company offers electronics and mechanical design, production, product management and aftermarket services to companies in the aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, solar, storage and telecommunications industries. The RBC team estimates the company gets 7% to 9% of its overall sales from Cisco on sales via routers and switches.
Jabil Circuit investors are paid a 1.72% dividend. The stock is rated Sector Perform at RBC, and the consensus price target is $25.50. The stock closed Thursday at $18.62 per share.
TE Connectivity Ltd. (NYSE: TEL) designs and manufactures products at the heart of electronic connections for the world’s leading industries including automotive, energy and industrial, broadband communications, consumer devices, health care and aerospace and defense. TE has a long-standing commitment to innovation and engineering excellence, which helps its customers solve the need for more energy efficiency, always-on communications and ever-increasing productivity demands.
While the company has a more modest exposure via its communication segment revenues and the RBC analysts see a 2% share of business from Cisco.
The stock is rated Outperform at RBC, and the consensus price target is posted at $69. The stock closed most recently at $53.66.
The resurgence at Cisco not only bodes well for these top companies, but industry peers of the company as well. With an ever-increasing need for latency, storage, security and data, we remain perhaps at the beginning of a huge build-out to accommodate current and future needs.