The obvious giant of the networking world

Although Cisco is the obvious giant of the networking world, its shares have been in a funk over the past decade. While this same time frame, the networking industry has matured, allowing competitors like Hewlett-Packard and Juniper Networks to enter the market and start to chip away at Cisco’s market share. Cisco has responded by looking for opportunities to expand into other markets. We’ll take a look at these companies to see how Cisco may or may not fit into your portfolio. Please use this analysis as a starting point for your own innovation.

Hewlett-Packard, with a PEG of 0.76, is undervalued, compared with expectations. The PEG ratios of Juniper and Cisco--Juniper’s is 1.23 vs. Cisco’s 1.26— imply that both companies are overvalued. Speaking of growth, the year over year quarterly revenue growth rate of these companies is all over the map. On the high end, Juniper has grown its revenue at a rate of 9.2% over the past year. Cisco has seen revenue growth of 4.7% and Hewlett-Packard grew its revenue by 1.5%.

The early 1990s

Since the early 1990s, Cisco has had the acquisition bug. It has acquired nearly 150 companies, primarily focusing on local-area networking (LAN), voice over internet protocol (VOIP) and security. Hewlett-Packard has a much richer, and longer history than Cisco. Established in the 1930s, Hewlett-Packard is more identified as a PC company. Like Cisco, it has pursued a similar strategy of differentiation. Ultimately, it is this expansion that led Hewlett-Packard into the networking arena. Juniper is the purest networking company of the three. It is focused on upgrading networking equipment from outdated innovation to newer and faster methods of moving data over the internet.

While Hewlett-Packard is truly a worthy investment, of the three, it is the least attractive. It has the lowest PEG ratio, indicating that it is undervalued, however it has been experiencing some confusion recently due to some changes at the top of the company. The new CEO, Meg Whitman, should help move Hewlett-Packard from its current hold status. During both Cisco and Juniper are both overvalued, each is worthy of an investment today. Juniper’s focus has allowed it to become something of a cash cow. As mentioned previously, the areas Cisco has been differentiating into—LAN, VoIP (Voice over Internet Protocol) and security-- are all turning out to be lucrative. This gives Cisco an edge since it can offset uncertainty in any of its markets with growth in the others.