Why Cisco Still Qualifies as a Stock to Own for the Next Decade

Trading at $57.25 currently, Cisco shares have a 52-week range of $40.25 to $58.15. The Refinitiv consensus analyst target price of $58.75 today implies only modest upside. Many analysts are still quite neutral on Cisco as well, with formal price targets that are under the current share price. Some exceptions are Goldman Sachs ($62), Merrill Lynch ($62, with potential upside), UBS ($61), Cowen ($65) and Raymond James ($60).

Many investors are going to think that Cisco is too boring today to own for the next decade. That said, the bull market is now well into its 10th year, and the media keeps reminding the public about how soon that next recession may come. Cisco obviously is not the same growth engine it was 20 years ago, nor will it ever likely be again. While it is a slower revenue grower than the top tech giants as we near 2020, Cisco has $35 billion in cash with a declining long-term debt load. It has averaged over $13 billion in annual cash flow from operations. It has raised its dividend and bought back boatloads of stock, and it likely can keep raising its dividend and committing more for buybacks. Cisco also likely will keep making opportunistic acquisitions.

Cisco’s current valuation is now about 18 times expected earnings, which is a slight premium to the market after years of trading at discount. With lower growth expectations, many investors may choose to wait to own Cisco until the next time the stock gets crushed after earnings or in a market sell-off.

With the bull market and economic expansion a decade old now, it seems more than reasonable to expect that one recession (and maybe even two) will have been seen by the time 2029 and 2030 arrive. There will be three presidential elections between then and now, and the balance of power in Congress may have shifted once or twice more. It also seems likely that the tax code might have some changes over the next decade.

It does not seem realistic to expect that the total stock market growth will be 350% over the next decade as it has been over the past decade from that V-bottom in early 2009. Much of the next decade’s total performance also may depend on how much the next equity market sell-off will be, if and when that next recession ever arrives. There is even the endless growth of government debt in the developed nations that has to be considered (like $16 trillion in federal U.S. debt today, or $22 trillion with intragovernmental debt included). In a decade from now, many of the baby boomers won’t just be retiring from work, they will be permanently checking out.

There are many pros and cons that investors can use in evaluating Cisco looking a decade out to 2029 or 2030. As of 2019, it seems that Cisco is here to stay and the 54-year old Chuck Robbins and his future successor(s) are probably going to make whatever moves they deem necessary to keep Cisco relevant and profitable over the next decade while still keeping with the company’s tradition of aggressively returning capital to shareholders.

It would be hard (and maybe even impossible) to just assign a $100 price target on Cisco out to 2029 or 2030. There are too many unknowns. Some of those unknowns could even make the next decade a total financially round-trip to nowhere. That said, long-term investors have to consider Cisco’s future beyond 2020, beyond the next election and even beyond the next business cycle. It is also not set in stone that Cisco will be a winner in the next decade. If things remain even close to what they have been over the past decade, it seems very reasonable to expect that Cisco will have paid out $20 or more in dividends and spent billions more on buybacks over the next 10 years.

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