Morningstar | Cisco Reports Record Quarterly Revenue and Provides Strong Guidance; Raising FVE to $43. See Updated Analyst Note from 15 Aug 2018
Cisco's record-setting fourth quarter closed out a strong 2018 fiscal year as both revenue and operating income for the quarter came in slightly ahead of consensus expectations. Cisco reported 6% year-over-year revenue growth in the quarter, and 3% growth for the fiscal year. We are maintaining our narrow moat and are raising our fair value estimate to $43 per share from $41 due to rolling our model. With shares trading in 3-star territory, investors should wait for a larger margin of safety.The company posted double-digit annual growth within its applications and security segments and in line with our projections. An unexpected positive was the 7% revenue gain within infrastructure systems, Cisco's largest operating segment. The company is benefiting from enterprises desiring a unified networking experience between on-premises, private and public clouds. Cisco's strategic focus of providing software, with analytics and security focused on cloud environments, is supplementing its industry-leading hardware. Customers find value in Cisco's ability to simplify the potential complexities in multi-cloud networking environments. Commodity components caused Cisco gross margins to decrease by 100 basis points to 62% for fiscal 2018 while operating margins declined to 25.7% from 26.5% due to increased operating expenses as Cisco invests in new product platforms.
The company's guidance of a 5%-7% year-over-year revenue increase for next quarter was higher than expected and drove the stock up 6% afterhours. We believe that Cisco will continue to repurchase shares while also increasing its dividend to $1.40 per share in fiscal 2019. Cisco is growing its main business units in a competitive environment, and we reiterate our thesis that Cisco's largest advantages may be its ability to sell an entire networking solution whereas competitors can only offer partial solutions.
Management reiterated its plan to roll out their subscription-based selling model to more product families, and we believe the company's focus of growing software and recurring revenue will help expand gross and operating margins. The company's goal is to have a single architecture for customers to use across their networking requirements, and we believe Cisco is making strides the correct direction. We do note concerns about the software-defined networking space becoming more crowded as allies become competitors, but we believe the abundant opportunities for enterprises migrating to cloud environments will keep stable gross margins for vendors.
Cisco's service provider video software solutions will be sold in the first half of fiscal 2019. The company recently acquired July Systems and announced its intention to purchase Duo Security. We opine that Cisco's plan to streamline its business while bolting on accretive capabilities toward the network edge should make it a dominant player in software-defined networking.
Cisco Systems designs and sells a range of technologies that power the Internet. The company's business is organized into the following three geographic segments: Americas; Europe, Middle East, and Africa; and Asia Pacific, Japan, and China. The company's products and technologies are grouped into the following categories: Infrastructure Platforms; Applications; Security and Other Products. In addition to its product offerings, the company provides a range of service offerings, including technical support services and other services. The company delivers its technologies through software and services. The company's customers include businesses of all sizes, public institutions, governments, and service providers.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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