To The Moon

$Cisco(CSCO)$‌(CSCO -1.36%) stock rose 4% during after-hours trading on Wednesday, Aug. 17, following its earnings report for its fiscal fourth quarter and the full year 2022. Revenue for the networking hardware and software maker stayed nearly flat from a year ago at $13.1 billion, but still exceeded analysts' estimates by $320 million. Adjusted earnings dipped 1% to $0.83 per share, which topped the consensus forecast by a penny.

Cisco's growth looked anemic, but the company expects it to accelerate again throughout fiscal 2023. Let's review its core growth, challenges, and valuations to see if it's a worthwhile investment.

Cisco's core businesses

Starting in fiscal 2022 (which ended on July 30), Cisco restructured its four core segments into six new ones: Secure, Agile Networks (which generated 46% of its revenue during the year); Internet for the Future (10%), Collaboration (9%), End-to-End Security (7%), Optimized Application Experiences (1%), and Services (26%). The aim is to give investors a clear view of its businesses. Here's how those six segments fared over the past year.

Cisco's Secure, Agile Networks division struggled this year with slower sales of switches and enterprise routers, which offset stronger sales of access-point, wireless, and server-based devices. The growth of its Internet for the Future segment also stalled out amid declining sales of cable, edge, and optical devices, as well as tough comparisons to its acquisition of Acacia last March. But the company said its weaker hardware sales were mainly due to supply constraints instead of lower demand.

Cisco's Collaboration business finally grew again in the fourth quarter as it sold more on-site collaboration hardware, but that growth was offset by slower sales of meetings and calling products in a post-lockdown market. That uneven growth suggests that Cisco is still struggling against Zoom Video Communications -- which is expected to generate 11% revenue growth this year -- as well as other competitors in the crowded videoconferencing market.

Cisco's higher-growth software businesses fared better. The growth of its End-to-End Security unit accelerated, while its Optimized Application Experiences unit benefited from the ongoing growth of ThousandEyes, its cloud-based network observability service. 

Brighter days are forecast

Cisco's fourth-quarter numbers were mixed, but management expects revenue to rise 2% to 4% year over year in the first quarter of fiscal 2023 and 4% to 6% for the full year.

That would be an improvement from its 3% revenue growth in fiscal 2022, and put it back on track to achieve its long-term goal of a compound annual growth rate (CAGR) of 5% to 7% between fiscal 2021 and fiscal 2025.

It presented that goal last September during a conference call. Chief Financial Officer Scott Herren said Cisco could achieve that acceleration even as it remained "supply constrained" in fiscal 2023. Herren said supply chain limits had been easing in the fourth quarter, but that they would still generate headwinds throughout fiscal 2023.

Gross margins stabilize

Adjusted gross margin for products fell year over year to 61.3% due to higher component, freight, and logistics costs related to the supply chain. Adjusted gross margin for services continued to expand, but failed to offset the decline in product margin.

However, Cisco expects total adjusted gross margin to stabilize sequentially at 63% to 64% in the first quarter of fiscal 2023. That brighter outlook supports the notion that supply constraints are easing.

Cisco expects adjusted earnings per share (EPS) to be anywhere from flat to 2% higher year over year in the first quarter of fiscal 2023, then increase by 4% to 6% for the full year. That could mean an acceleration from 4% adjusted EPS growth in fiscal 2022, supporting its goal of a 5% to 7% CAGR between fiscal 2021 and fiscal 2025.

Cisco's stock could be a safe bear market buy

At $50, the stock trades at only 14 times the midpoint of its adjusted EPS forecast for fiscal 2023 and pays a forward dividend yield of 3.2%. That low valuation and high yield should make it a safe stock as rising interest rates rattle the broader tech sector.

The company's steady growth; consistent profits; and massive cushion of $19.3 billion in cash, cash equivalents, and investments should also make it a dependable defensive stock during a recession. Cisco isn't an exciting investment -- but it could be a great stock to buy and hold until the bear market finally ends.