Best Value Tech Stocks: Oracle Vs. Cisco

Oracle (ORCL -2.80%) And Cisco Systems (CSCO -2.03%) Both are mature technology startups that are more focused on stability and revenue ownership than strong growth. However, those qualities make them safe haven stocks as rising interest rates and other macro headwinds crush high-growth tech stocks.

Should investors buy one of these blue chip tech stocks today? Let’s take a fresh look at their business models, assumptions and divisions to decide.

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Differences between Cisco and Oracle

Oracle and Cisco operate in different markets, but both are legacy companies that are expanding beyond their legacy businesses.

Oracle is the world’s leading database management software company. Over the past decade, it has transformed its on-premises software into cloud-based services that are flexible and easy to scale. It also expanded that ecosystem with several enterprise resource planning (ERP) tools.

Cisco is the world’s largest manufacturer of network routers and switches. To grow beyond those high-yield markets, it is introducing new wireless devices and expanding its software portfolio with more cybersecurity services and network monitoring software.

Which company is growing the fastest?

Oracle’s revenue growth in fiscal years 2019 and 2020 (the calendar year ended in May) was limited as the expansion of its cloud services failed to offset slower growth on the frontline. However, the market’s demand for cloud services has steadily increased throughout the pandemic, and Oracle’s revenue grew 4 percent in fiscal 2021 and 5 percent in fiscal 2022.

Oracle now expects its cloud revenue to grow 30% organically in fiscal 2023, compared with 22% growth last year, and analysts expect total revenue (including its recent acquisition of Cerner) to grow 17%, with 67% revenue growth. After that big acquisition, analysts expect Oracle’s revenue and earnings to grow 6% and 21%, respectively, in fiscal 2024.

Cisco’s revenue rose 7 percent in fiscal 2019, the calendar year that ended in July, as more enterprise customers upgraded networking hardware. But in fiscal 2020, revenue fell 5 percent as those improvements slowed and the trade war dented sales in China. In the year In fiscal 2021, revenue grew by just 1% as the recovery was hampered by supply chain issues.

In fiscal 2022, Cisco’s revenue rose 3 percent as its hardware business worked through supply chain disruptions and its software businesses grew. CCCC is bracing for additional supply chain headwinds in fiscal 2023, but expects revenue and earnings to grow 4-6 percent as the pressure gradually eases. Analysts expect revenue and earnings to grow another 4% and 7%, respectively, in fiscal 2024.

What about acquisitions and dividends?

Over the past 10 years, Oracle and Cisco have reduced their outstanding share by 45% and 22%, respectively. Both companies can expect those acquisitions in the future.

Both companies pay good dividends. Oracle currently pays a 1.6% forward yield, but Cisco pays a much higher 3.1% yield. Oracle has not consistently increased its dividend every year, but CCCC has maintained annual increases since it began paying its first dividend in 2011.

Which stock is the best value?

While Oracle trades at 20 times forward earnings, Cisco has a lower price-to-earnings ratio of 16. Both stocks are fairly priced, but I believe Oracle is a slightly better buy right now because its core business is vulnerable to supply chain disruptions. Cloud growth is accelerating, and its large acquisitions will consistently drive long-term revenue growth. Cisco is still a good value play, but I believe valuations will remain depressed until it fully overcomes supply chain shortages.