Cisco Systems, Inc. (CSCO): Time To Buy This Stock With New CEO?

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July 28, 2015 11:30am ETF BASIC NEWS

wall-street-etfJim Bach:  Yesterday (Sunday), Cisco Systems Inc. (NASDAQ:CSCO) officially saw former CEO John Chambers depart from a post he held for more than two decades. In stepped a senior vice president, Chuck Robbins.

This regime change at Cisco isn’t going to spark explosive gains in CSCO stock– but CSCO stock isn’t going to be hurt by it either.

“I’m encouraged to see they’re changing leaders. I think that Chambers has been there a little bit too long,” Money Morning Defense & Tech Specialist Michael A. Robinson said.

Chambers was certainly a great creator of shareholder value in his long tenure. Under Chambers, the CSCO stock price experienced nominal growth, with splits included, of almost 1,400%, from $1.90 a share when he stepped in to $28.40 when he left this past week.

Sales have grown from $4.1 billion in his first fiscal year as CEO to $47.1 billion – more than 1,000%. And income has grown in that same time from $913.3 million to $7.9 billion – more than 750%.

The pressure is now on Robbins to keep the momentum going.

And while Robbins likely won’t be able to create the kind of sales and earnings growth that Chambers oversaw, or the same explosive CSCO stock price growth, it doesn’t mean CSCO stock should be overlooked by investors.

CSCO stock is a good buy, Chambers or not.

Here’s why…

Should I Buy CSCO Stock with New Cisco CEO?

The handoff of the CEO role from Chambers to Robbins has had an almost negligible impact on the CSCO stock price.

Since the announcement of Chambers’ departure on May 5, CSCO stock has fallen about 2.6% – compared to the Dow Jones Industrial Average, which has fallen about 2.8% in that same period.

So obviously, investors are muted on their endorsements of a Robbins-led Cisco.

This is as expected.

Robbins isn’t going to shake up Cisco. He’s a long-time veteran and a company man through-and-through. His task at the moment is rather simple.

“The challenge for the new CEO will be defending market share,” Robinson said.

And as far as market share in Cisco’s main line of business is concerned – data networking hardware – there aren’t too many competitive headwinds to make Robbins’ new role as CEO difficult.

In 2014, Cisco held a 44% market share in what was an $18.4 billion industry, according toBloomberg Intelligence.

It led market share in switches at 56.8%, routing at 47.8%, data center network hardware at 46.9%, and even to a lesser extent, IP telephony and wireless LAN at 28.3% and 24.7%, respectively.

That doesn’t mean Cisco has no competition. Its two main competitors are Huawei Technologies Co. Ltd. and Juniper Networks Inc. (NYSE: JNPR).

Huawei has stolen some market share from Cisco over the last few years.

Huawei has grown routing market share from 6.9% in 2010 to 12.8% in 2014, while Cisco’s share has fallen from 55.3% to 47.8%.

But it’s a Chinese company. It’s not going to break through into the United States in any meaningful way and challenge Cisco’s dominance in U.S. markets.

And luckily, in confronting this challenge, Cisco has been proactive. Last month, Cisco announced that it was going to grow its investment in China by $10 billion over the next several years. It’s taking the fight directly to Huawei.

Juniper is a little different because it is in direct competition with Cisco. It has stolen a sizable amount of market share from Cisco, but Cisco still dominates.

Cisco’s market share for switches was at 64.5% in 2010 and fell to just around 57% in 2014. Juniper’s has grown from 1.8% to 3%. In data center networking hardware, Cisco has fallen from 58.7% in 2014 to 46.9% – Juniper has grown from 2.1% to 3%.

So, what does this all mean for CSCO stock under Robbins?

Nothing too devastating.

Market share has been dropping for Cisco as Juniper’s has increased. But Cisco still dominates. And in its current position, it would be hard for Robbins to completely unravel the empire that Chambers has built up over the last two decades. You can consider CSCO stock one of the better tech stocks to buy right now.

“They still make good products,” Robinson said. “It’s one of those big-cap companies that I think is a good foundational play.”

The Bottom Line: If you want to play data networking hardware, CSCO stock is a good long-term buy-and-hold. Chambers built up a formidable hold on this market for Cisco in his 20-year reign. And while it is being challenged marginally by Juniper in the States and Huawei in China, you’re not going to see either take the lead anytime soon.

Money MorningWritten By Jim Bach From Money Morning

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