Cisco Gets A1 Rating from Moody's - Analyst Blog

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Last week, Cisco Systems, Inc. ( CSCO ) was assigned an A1 rating by leading credit rating agency Moody's along with a stable outlook. Investors seemed unaffected by the news as share price reaction was muted in the subsequent trading sessions.

The rating agency has assigned the A1 rating based on the Internet protocol (IP) provider's strength in network equipment domain aided by its broad and innovative product line, huge extent of operations and distribution, end to end networking capabilities and advanced technology development abilities. Despite growing competition from several smaller players, these key points helped the company sustain its market share.

In addition, the company's strong footing in the networking space, cost efficiency and a sturdy balance sheet also influenced the rating. The company has around $50.5 billion in cash and highly liquid short-term investments, up $3.4 billion during the third quarter.

The company maintains very strong liquidity, with cash and short-term investments at roughly 49.5% of total assets. This enables the company to return value to shareholders through regular share repurchases and dividends. Moreover, it helps the company to invest aggressively to enlarge its core business and effectively deal with competitive challenges.

Moody's assigned a stable outlook on the rating based on enhanced operating performance by Cisco. The agency believes that its improved performance will continue in the future too.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as in maintaining credit worthiness in the market. Moody's A1 rating is an investment grade rating, indicating upper-medium grade obligations with very low credit risk.

Cisco reported decent third-quarter results with revenues up 4.8% sequentially to $8.8 billion, reflecting Cisco's superior strategy and innovation. Even reported gross margin for the quarter was 60.7%, up 740 basis points (bps) sequentially. The sequential increase was due to a favorable product mix and higher volumes.

Cisco currently holds a Zacks Rank #2 (Buy). Other better-ranked stocks worth considering include Rovi Corp. ( ROVI ) and LivePerson Inc. ( LPSN ), sporting a Zacks Rank #1 (Strong Buy) and Web.com Group, Inc. ( WWWW ), carrying a Zacks Rank #2.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: IP , CSCO , WWWW , ROVI , LPSN

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