Today, Wall Street analysts upgraded Cisco Systems and Nike, reflecting positive shifts in their financial outlooks. Cisco received upgrades from both HSBC and New Street Research. HSBC upgraded Cisco from “Hold” to “Buy” and raised its price target from $46 to $58, citing expectations of a compound annual growth rate of 11.6% for non-GAAP EPS over the next few years. New Street Research also upgraded Cisco from “Neutral” to “Buy,” forecasting a price target of $57 and noting that Cisco’s transition to subscription-based and software-defined products would drive margin expansion and growth. Meanwhile, Nike was upgraded by Williams Trading from “Sell” to “Buy,” with a new price target of $93, reflecting a positive outlook on the company’s performance. These upgrades contributed to a rise in the share prices of both companies, with Cisco’s shares increasing by about 2% and Nike’s by 5.1% following the announcements.
But how do they both stack up fundamentally?
For that, we turn to our guru models, which are based on the strategies of great investors like Warren Buffett, Peter Lynch, Ben Graham and Martin Zweig.
Overall Ratings and Classification
Cisco (CSCO) is classified as a value stock by Validea’s system, with a PE ratio of 19.1, below the market average. In contrast, Nike (NKE) is neither classified as a growth nor value stock, due to its low historical EPS growth rate of 9.6% and above-market PE ratio of 22.1.
Top-Performing Models
For Cisco (CSCO), the top-performing model is the Growth/Value Investor strategy based on James O’Shaughnessy, with a perfect 100% score. This model favors Cisco for its large market cap ($195,518 million), strong cash flow per share ($3.18), and high number of outstanding shares (4,029 million).
Nike (NKE)‘s best-performing model is the P/B Growth Investor strategy inspired by Partha Mohanram, with an 88% score. This model appreciates Nike‘s low book-to-market ratio (0.12), above-industry-average return on assets (14.69%), and strong cash flow from operations to assets (17.17%).
Value Investor Perspective
The Value Investor model, based on Benjamin Graham’s principles, gives Cisco (CSCO) a 29% score, while Nike (NKE) scores significantly higher at 71%.
Nike passes several key Graham criteria:
- Annual sales over $1 billion ($51,362 million)
- Current ratio above 2 (2.40)
- Long-term debt not exceeding net current assets
- EPS growth of 94.7% over ten years
However, Nike fails the P/E ratio test (22.14, above Graham’s limit of 15) and the Price/Book ratio test.
Growth Investor Analysis
The Growth Investor strategy, inspired by Martin Zweig, gives Cisco (CSCO) a 38% score and Nike (NKE) a slightly higher 54% score.
Nike passes some key growth criteria:
- Positive current quarter earnings ($0.99 EPS)
- Positive earnings growth rate for current quarter (50.00%)
- Current quarter earnings growth exceeding prior three quarters and historical growth rate
However, Nike fails on revenue growth relative to earnings growth, sales growth rate, and long-term EPS growth rate (9.59%, below the 15% minimum).
Patient Investor Perspective
The Patient Investor strategy, based on Warren Buffett’s approach, gives Cisco (CSCO) a 72% score while Nike (NKE) scores 0%.
Cisco is favored for its:
- Predictable earnings (despite some fluctuations)
- Ability to pay off debt with earnings in less than two years
- Consistently high return on equity (average 23.0% over ten years)
- Strong return on total capital (17.6% average over ten years)
However, Cisco fails on management’s use of retained earnings and the expected rate of return criterion.
Contrarian and Price/Sales Perspectives
Both companies score 50% on the Contrarian Investor model based on David Dreman’s approach. However, on the Price/Sales Investor model inspired by Kenneth Fisher, Cisco (CSCO) scores only 10% while Nike (NKE) achieves 38%.
Conclusion
While both Cisco (CSCO) and Nike (NKE) show strengths in different areas, neither company receives a strong buy recommendation based on Validea’s guru models. Cisco performs well on the Growth/Value and Patient Investor models, while Nike shows strength in the P/B Growth and Value Investor models.
Further Research
