How to evaluate a company’s stock performance (Cisco vs Juniper)

A financial assessment of Cisco Systems, Inc. (CSCO) and Juniper Networks, Inc. (JNPR)

If you are successful in marketing or an independent marketing consultant, the time may come when you have some extra money set aside.

While this is not investment advice (responsible adults can make their own decisions in a free market), this is a graduate-level assessment of how an investor may review the financial data of two companies in a competitive environment.

There are a variety of ways to review the financial performance of a company and how to evaluate a company’s stock performance. Here’s a general outline of how a very sophisticated investor may evaluate the important information.

The stock prices, earnings, and financial information of JNPR and CSCO have of course changed, but the fundamentals and the formulas are just as solid as ever. 

The goal here is to look at how a seasoned investor will review an investment before allocating any cash. This is not to provide any specific investment advice.

If you need options on how to build your career in marketing with the intent to earn an income, please review these helpful marketing career tutorials:

Ok, now that you know how to get your marketing career started, and hopefully earn some income, here’s how a professional investor given some free cash flow available to invest (in the below hypothetical exercise the investor has $1,000,000 to invest) may compare two companies in a competitive environment.

Enjoy! 

Which primary industry are they in?

  • Both Cisco and Juniper are in the technology sector and are competing in the Networking and Communication Device industry.
  • Cisco is trading on Nasdaq under the symbol CSCO. Juniper is trading on NYSE under the symbol JNPR.
  • Cisco's EPS is $1.50 basic and $1.49 diluted.  JNPR’s EPS is also reporting a value for both basic and diluted earnings per share. Both EPS values are the same showing a loss of .73.  
  • Cisco's auditors were PricewaterhouseCoopers, LLC and were given a clean audit.  Juniper's auditor was Ernst & Young LLP which also received a clean audit.
  • Cisco’s EPS is down 19.9% from 2013 as a result of a 21% decrease in net revenues and $1.5 billion in declining sales (3%) vs 2013. JNPR EPS showed a loss of .73 in 2014 compared to a gain of .88 (basic EPS) in 2013; representing a 184% average decline in performance year over year.

Calculate the return on assets, asset turn-over, and profit margin ratio.

  1. ROA = net income / avg assets
  2. AT = sales / avg assets
  3. PM = net income / sales
  • Cisco ROA =  $7853 / 103,162.5 = 7.6%
  • Juniper ROA  = ($334.3) / $9364.55 = (3.6%)
  • Cisco AT = $47,142 / 103,162.5 = .457
  • Juniper AT = $4627.1 / $9364.55 = .494
  • Cisco PM = $7853 / $47,142 = 16.7%
  • Juniper PM = (334.3) / $4627.1 = (7.22%)

Calculate the return on equity: ROE = net income / avg shareholders equity

  • Cisco ROE = $7853 / $57,887 = 13.6%
  • Juniper ROE = (334.3) / $6110.65 = (5.47%)

A fun, hypothetical question…

Given what you now know – how would you allocate $1,000,000 between these two companies as an investment?  Why?  

You can put all $1,000,000 towards 1 company if you wish, and you can purchase partial shares. 

If I were to invest 1,000,000 into buying either CSCO or JNPR common stock, or a combination of both, I would want to earn a return on my investment that pays a regular cash payment. With that, the allocation of $1,000,000 is clear to me based on the two companies track record.

I would start by saying I would not invest into Juniper for at least 2 reasons; 

1.) Juniper’s net income is not as stable as their sales revenue over the last 3 years, which shows a net loss in 2014, and 

2.) I am not convinced that Juniper’s management team is getting the most from their assets, especially after realizing a negative ROA in 2014. 

In addition, Juniper began paying a dividend to shareholders in 2014, which is not sustainable if net income is at a loss. 

The better choice for my goals seem to be Cisco; for a return on investment and a steady cash payment. 

If I was to purchase 1,000,000 worth of shares at the market value of $25.41 (market close as of 9/24/13), I would own 39,355 Cisco shares. Cisco currently pays a dividend yield of 3.29%, and has a positive track record of regularly paying quarterly dividends since 2011. 

Comparatively, if I was to purchase 1,000,000 worth of JNPR shares at $25.31 (market close as of 9/24/13), I would own 39,510 shares.  Juniper has paid a 1.57% dividend yield which they started paying 2014 mid-year.

Calculating your potential return on investment

39,355 CSCO shares = $25.41 x 3.29% = annual $0.84 payout per share $0.84 x 39,355 = $33,058 annual dividend income. At this rate, it would take 30.2 years to make my $1,000,000 back and does feature a regular cash return.

39,510 JNPR shares = $25.31 x 1.57% = $0.40 payout per year. $0.40 x 39,510 = $15,804 annual dividend income. At this rate, it would take 63.3 years to make my $1,000,000 back, and pays much less than Cisco.

Based on this, Cisco is the clear choice. 

Another metric to consider would be nonowner liabilities which could harm the dividend payouts. Juniper carries a nonowner liability of 41% and Cisco is higher at 46%. The higher liability percentage could present a problem as it relates to allocating net income to liabilities before paying dividends. 

I would not put any money into buying JNPR stock as an investment. I would put 100% of my money into CSCO stock. 

My exit plan would be this: If at any point Cisco reports to their shareholders that their dividend will be reduced or cut, I would re-evaluate my investment strategy.  

Newsletter for Serious Marketers

Your Strategic Marketing Partner reveals insider secrets for gaining customers and building great brands.

Gain free marketing strategies in our email newsletter (always professional and never spam):

Please wait...

Thank you for enrolling!

Categories: