Best Blueprint Tech Stock: Cisco Systems vs. Oracle


Cisco (NASDAQ: CSCO) and Oracle (NYSE: ORCL) are two technological pillars better known for buyouts and dividends than for growth. But over the past 12 months, both stocks have gained more than 40% and outperformed the S&P 500 and NASDAQ. Let’s see why investors have flocked to these two blue-chip tech stocks – and whether either stock is worth buying right now.

The rotation of growth stocks towards valuable technology stocks

Last year, the pandemic started a fire in some businesses in the e-commerce, cloud and remote work industries, which benefited from home support trends. But this year, many of those high-growth stocks stumbled as investors turned to reopen the games.

As a result, mature tech companies like Cisco and Oracle, which trade at lower valuations and face easier year-over-year comparisons in a post-pandemic market, have become attractive investments again.

Image source: Getty Images.

The differences between Cisco and Oracle

Cisco is the world’s largest manufacturer of network switches and routers. Last year, it generated 54% of its revenue from its infrastructure platforms business, which manufactures this networking hardware and other devices. The rest came from its applications, security and services activities.

Cisco has launched more software subscriptions to lock in its corporate customers and reduce its reliance on hardware sales. It generated 44% of its revenue from subscriptions in fiscal 2021, which ended in July, and it expects that percentage to reach 50% by fiscal 2025.

Oracle is the world’s largest database management company. It initially provided on-premise database hardware and software, but it turned those platforms into cloud-based services.

Oracle has also extended its ecosystem beyond database products with more ERP (enterprise resource planning) services. It launched its Fusion ERP suite of applications shortly after acquiring PeopleSoft, JD Edwards, and Siebel Systems in 2005. It also purchased cloud enterprise software company NetSuite in 2016 to bolster its ERP ecosystem with cloud services. additional.

Which business is growing the fastest?

Cisco and Oracle have both generated moderate revenue growth over the past five years. Both companies also suffered downturns during the pandemic last year, followed by gradual recoveries throughout fiscal 2021.

Income growth (YOY)

2017 financial year

2018 financial year

FISCAL 2019

FISCAL 2020

Fiscal year 2021

Cisco

(2%) *

3%

7%

(5%)

1%

Oracle

3%

6%

0%

(1%)

4%

Source: Annual reports. YOY = Year after year. * Excluding the sale of its SP Video CPE business.

Cisco’s growth slowed last year as the pandemic disrupted purchases of network hardware from enterprise and data center customers. It also lost contracts in China as the trade war escalated.

But Cisco’s revenue growth accelerated in the second half of 2021, and it expects its revenue to grow 5% to 7% in fiscal 2022. It also expects its revenues increase at a CAGR of 5% to 7% between fiscal years 2021 and 2025. Cisco attributes this more optimistic outlook to the post-pandemic recovery of the enterprise market, the expansion of its subscription business and the multiple opportunities for business. ‘expansion into newer markets such as hybrid work, automation and end-to-end security systems.

Oracle’s growth accelerated last year as strong demand for its cloud-based services, particularly its ERP Fusion and NetSuite services, offset weak on-premises operations during the pandemic.

Oracle expects its revenue to grow from mid-to-single digits in constant currency terms in fiscal 2022 as its growth in the cloud accelerates. Oracle hasn’t provided longer-term estimates like Cisco, but analysts expect its revenue to grow by around 4% (in reported terms) in fiscal years 2022 and 2023.

Which business is the most profitable?

Oracle has generated much stronger earnings growth than Cisco over the past five years, mainly because it bought back a lot more shares.

Non-GAAP EPS Growth (YOY)

FISCAL 2017

2018 financial year

FISCAL 2019

FISCAL 2020

Fiscal year 2021

Cisco

1% *

9%

20%

4%

0%

Oracle

5%

14%

16%

9%

21%

Source: Annual reports. * Excluding SP Video CPE activity.

Over the past five years, Oracle has reduced its outstanding shares by 33% while its stock has increased by over 120%. Cisco reduced its outstanding shares by 16% while its stock rose more than 80%.

Cisco expects its non-GAAP EPS to grow 5-7% this year and then a 5-7% CAGR in fiscal 2021 to 2025. It expects a growing mix higher margin subscription revenue increases its EPS.

Oracle expects to generate a higher percentage of its revenue from its higher margin cloud business than its lower margin on-premises business this year. Analysts expect Oracle’s non-GAAP BPA to drop 1% this year as it ramps up spending in the cloud, then rise 11% next year as its margins stabilize.

The evaluations and the verdict

Cisco is trading at 16 times futures earnings, while Oracle has a forward P / E of 17. Both stocks are fundamentally cheap, but Cisco stock looks cheaper relative to its growth rates. future.

Cisco’s 2.6% forward dividend yield is also higher than Oracle’s 1.5% yield. Cisco typically spends more of its free cash flow on dividends than on buyouts, while Oracle favors large buyouts over dividends.

Cisco and Oracle are both secure tech stocks, but Cisco’s higher growth rates, lower valuation, and higher dividends make it the best buy. It also offers investors a much clearer long-term outlook than Oracle.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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