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2 Top Tech Stocks in the Networking Industry

The work-from-home trend will likely continue even in the post-pandemic environment given its benefits. Consequently, we think it wise to bet on Cisco Systems (CSCO) and Aviat Networks (AVNW). Why? Because they are top players in the networking space and are expanding their market reach to capitalize on growing demand. Read on for details on these names.

Most  tech stocks have gained significantly over the past year as demand for technology solutions increased with the broad adoption of work-from-home structures amid the COVID-19 pandemic. Given the increased connectivity required to facilitate remote organizational structures,  the network industry has been one of the major beneficiaries.

While some tech stocks have experienced a pullback lately due to investors’ rotation away from pricey tech stocks and into quality bargains and rising Treasury bond yields,  pandemic-driven trends — such as work-from-home — are likely to continue in the foreseeable future thereby helping technology stocks to continue outperforming the broader market.

The backdrop for networking companies is  expected to remain favorable. In fact, the Network as a Service (NaaS) market is expected to grow at a CAGR of 34.5% over the next six  years and the IT services global market is expected to grow at a CAGR of 11% over the next five years.

So, we think it wise to bet on top networking stocks Cisco Systems, Inc. (CSCO) and Aviat Networks, Inc. (AVNW).

Cisco Systems, Inc. (CSCO)

Based in San Jose, California, CSCO designs, manufactures, and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide. The company operates through three geographic segments — Americas; Europe, Middle East, and Africa; and Asia Pacific, Japan, and China. CSCO’s offerings include infrastructure platforms, applications, security and other products.

On March 1, 2021, CSCO completed the acquisition of Acacia Communications, Inc. (ACIA). The acquisition  reinforces CSCO’s commitment to optics as a critical building block that is expected to enhance its ‘Internet for the Future’ strategy with world class coherent optical solutions for customers. Also, CSCO  completed the acquisition of IMImobile PLC on February 19. IMImobile is a leading global provider of cloud communications software and services that manage business-critical interactions at scale.

CSCO’s total revenue came in at $11.96 billion for the fiscal 2021 second quarter, ended January 23, 2021. The company’s revenue from the service segment increased 1.6% year-over-year to $3.39 billion. Its non-GAAP net income was  $3.36 billion, up 2.3% year-over-year. Its non-GAAP EPS increased 2.6% year-over-year to $0.79.

A consensus EPS estimate of $0.85 for the quarter ending July 31, 2021 represents an improvement of 6.2% year-over-year. Also,  CSCO has surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $12.79 billion for the same quarter ending July 31, 2021 represents a 5.2% rise year-over-year. The stock has gained 16.9% over the past year and closed Friday’s trading session at $46.25.

CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has an A grade for Quality and a B grade for Stability. We have also graded CSCO for Growth, Value, Sentiment and Momentum. Click here to access all CSCO’s ratings.

CSCO is ranked #7 of 54 stocks in the B-rated Technology – Communication/Networking industry.

Aviat Networks, Inc. (AVNW)

Headquartered in Austin, Texas AVNW is a supplier of microwave networking solutions. The company’s products include broadband wireless access base stations and customer premises equipment for fixed and mobile networks, and point-to-point digital microwave radio systems for access, backhaul, trunking, and license-exempt applications. The company also provides a suite of professional services, including planning, deployment, operation, optimization, and maintenance of customers' networks.

On March 5, 2021, AVNW’s Board of Directors declared a two-for-one stock split in the form of a stock dividend  to make the stock more accessible to a broader base of investors. In February, the company  announced that LTD Broadband, an internet service provider (ISP), will deploy AVNW’s WTM 4000 microwave and multi-band platform systems in its network middle mile and for fiber redundancy. AVNW announced on December 2, 2020 that Nextlink Internet, which is also an ISP, is extending its fiber backbone utilizing AVNW’s WTM 4000 microwave and multi-band platform.

AVNW’s total revenues have increased nearly 26% year-over-year to $70.53 million for the fiscal 2021 second quarter ended January 1, 2021. The company’s revenue from product sales increased 36.7% year-over-year to $46.69 million, while revenue from services increased more than 9% year-over-year. Its net income came was  $6.64 million in comparison to its net loss of $1.67 million for the fiscal 2020 second quarter, ended December 27, 2019. Also, its non-GAAP EPS was  $1.48.

A consensus EPS estimate of $0.73 for the current quarter, ending March 31, 2021, represents an improvement of 87.2% year-over-year. AVNW has surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $262.91 million for the fiscal 2021 represents a 10.2% rise year-over-year. The stock has gained 331.5% over the past year and closed Friday’s trading session at $53.59.

The POWR Ratings are also high on AVNW. It has an Overall Rating of A, which translates to a Strong Buy. The stock also has an A  grade for Growth, Value and Sentiment, and a B for Quality. We have also graded AVNW for Stability and Momentum. Click here to access all AVNW’s ratings.

AVNW is ranked #1 in the same industry.

The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

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CSCO shares rose $0.14 (+0.29%) in after-hours trading Monday. Year-to-date, CSCO has gained 7.03%, versus a 2.10% rise in the benchmark S&P 500 index during the same period.



About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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