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How Cisco Systems Is Looking to Improve Shareholder Value

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Aug. 14 2017, Updated 10:36 a.m. ET

Increase in revenue and EPS

As we can see below, Cisco Systems (CSCO) expects its revenue to grow from $45.0 billion in fiscal 2014 to $48.0 billion in fiscal 2017 at a CAGR (compound annual growth rate) of 2.0%. EPS (earnings per share) is expected to grow at a CAGR of 6.0% from $2.02 in fiscal 2014 to $2.39 in fiscal 2017. Non-GAAP (generally accepted accounting principles) operating margin is also expected to rise from 29.0% to 31.0% in the same period.

Cisco has attributed this growth to its focus on software and new growth areas such as analytics. Cisco has also improved its profit margins by optimizing costs through automation, innovation, and software value creation.

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Acquisitions and capital return to shareholders

Cisco’s operating cash flow has increased from $10.0 billion in fiscal 2007 to $13.5 billion at the end of fiscal 2016. It has used its cash to fund acquisitions, capital expenditure, share repurchases, and dividends to shareholders.

Its dividend per share has grown at a CAGR of 30.0% from $0.24 in fiscal 2011 to $1.04 in fiscal 2016. Cisco has a dividend yield of 3.7%. Peer technology (QQQ) firms IBM (IBM) and Hewlett Packard Enterprise (HPE) have dividend yields of 4.3% and 1.5%, respectively. Cisco has returned $13.0 billion to its shareholders through repurchases and dividends in fiscal 2014. In fiscal 2015 and 2016, this figure was $8.0 billion and $9.0 billion, respectively.

In fiscal 2017, Cisco aims to return $9.0 billion, or 70.0%, of its free cash flow to its shareholders.

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