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Keep an Eye on These 3 Networking Stocks From a Thriving Industry
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Increasing focus on cloud computing, network security, big data and cloud storage is expected to boost the Zacks Computer - Networking industry participants’ performance amid the rapid proliferation of AI technology. The players in this space are focused on capitalizing on the multibillion-dollar AI infrastructure opportunity. The accelerated deployment of 5G is driving the proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS), Augmented Reality/Virtual Reality (AR/VR) devices and 5G smartphones, calling for solid networking infrastructure. The Wi-Fi 7 upgrade cycle will also act as a growth catalyst. This spurred the demand for networking products, favoring prospects of prominent industry players like Cisco (CSCO - Free Report) , NetScout Systems (NTCT - Free Report) and Intrusion Inc (INTZ - Free Report) . Weak global economic conditions, weak demand from telco and cable customers and volatile supply chain dynamics continue to be concerns. Also, client inventory reduction efforts are affecting some participants' performance.
Industry Description
The Zacks Computer - Networking industry comprises companies that offer networking and Internet-connected products, including wireless (WiFi and Long-Term Evolution or LTE), Ethernet and powerline, focusing on dependability and ease of use. The products are available in numerous configurations to cater to the changing requirements of consumers in each geographic territory where it operates. Some industry players also provide mission-critical IoT solutions and network security services to help clients build next-generation connected products and implement and manage critical communications infrastructures in demanding environments with enhanced safety levels. Focus on developing IoT sensors, drones and wearables amid increasing demand for cloud computing-based contact tracing applications is driving the industry.
4 Trends Influencing the Industry's Future
Innovation in Networking Technologies is Opening New Business Avenues: The growing clout of Smart Home and Internet-connected products such as Smart TVs, game consoles, High Definition (HD) streaming players, security cameras, thermostats and smoke detectors continue to drive innovations in networking. The rapid proliferation of IoT, the increasing popularity of smart connected devices and the growing adoption of cloud computing in network security fuel the demand for an efficient network support infrastructure. The advancements in AI and ML and the high adoption of cloud applications hold immense potential for companies in the industry. Enterprises are striving to manage fixed and wireless devices in a secured infrastructure. To address the demand, industry firms are driving innovation in networking technologies, including network virtualization and Software-Defined Networking (SDN), which favor growth prospects.
Rapid Deployment of 5G to Boost Growth Prospects: Adopting a hybrid/flexible work model triggered the demand for network-intensive applications like video conferencing and cloud services. This accelerated 5G deployment globally. The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support growth in data services. Efforts to develop smart connected homes, hospitals, factories, buildings, cities and self-driving vehicles bode well for industry players. These firms invest heavily in LTE, broadband and fiber to provide additional capacity and improve Internet and wireless networks. These initiatives hold promise.
Wi-Fi 7 Upgrade Cycle to Drive Momentum: Brisk technological advancement, dynamic products, high-speed connectivity, low latency and evolving industry standards define the Computer Networking industry. The growing clout of the latest Wi-Fi 6E-compliant residential gateways, Wi-Fi routers, set-top boxes and wireless range extenders is a testament to the same. The increasing demand to connect more devices to the network has been driving demand for Wi-Fi 6E devices. Wi-Fi 6E addresses Wi-Fi spectrum shortage issues by providing continuous channel bandwidth to support a higher number of connected devices without compromising speed. Moreover, the rollout of Wi-Fi 7 bodes well for the companies in this space.
Macroeconomic Turmoil Concerning: Global macroeconomic weakness and volatile supply chain dynamics are persistent concerns. Inflation could affect spending across small and medium-sized businesses globally, and uncertainty in business visibility could dent the industry’s performance in the near term.
Zacks Industry Rank Indicates Bright Near-Term Prospects
The Zacks Computer - Networking Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #76, positioning it in the top 30% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P 500 and the Sector
The Zacks Computer – Networking industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has declined 9.6% over this period against the broader sector’s rally of 34.6%. The S&P 500 has appreciated 27.1% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings ratio (P/E), which is a common multiple for valuing Computer – Networking stocks, the industry is currently trading at 16.94X compared with the S&P 500’s 21.48X. It is also below the sector’s forward-12-month P/E of 25.84X.
In the past five years, the industry traded as high as 20.33X and as low as 12.56X, with media being at 15.27X, as the charts below show.
Forward 12-Month P/E Ratio
3 Computer - Networking Stocks to Keep an Eye on
NetScout Systems: This Westford, MA-based company provides performance management, cybersecurity and DDoS protection solutions. Demand trends for Service Assurance and Cybersecurity product lines for the long term remain healthy. Extensive cost-cutting efforts to manage discretionary spending bodes well.
Recently, NETSCOUT announced that it was collaborating with its partner ecosystem (Cisco, Palo Alto Networks, ServiceNow, and others) to integrate its AI-ready data and deliver the insights needed by clients to drive improved results. Earlier this year, the company unveiled a new suite of Business Edge Observability products, including the nGenius Edge Sensor and Remote InfiniStreamNG solutions. This comprehensive suite of solutions will aid in enabling IT observability for remote locations at the digital edge. It also expanded its Arbor Cloud DDoS attack mitigation network with the addition of a new facility in Toronto, taking the total count to 16 scrubbing centers globally. For fiscal 2025, the company expects revenues in the range of $800 million to $830 million, while non-GAAP earnings per share are forecast to be between $2.10 and $2.30.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $2.20 per share, improved from an estimate of $2.10 per share in the past 60 days.
Price and Consensus: NTCT
Intrusion: Headquartered in Plano, TX, Intrusion is a cybersecurity company. Intrusion’s suite of security products helps businesses protect critical information assets by quickly detecting, analyzing and responding to network- and host-based attacks.
The company is witnessing strong momentum for its Shield products. The addition of a government contract for Shield and consulting services and the signing of several new logos over the past few quarters benefited the top-line performance in the second quarter of 2024. Revenues surged 29% sequentially. Intrusion expanded its customer base within the government sector by securing a significant new order for Intrusion Shield. This marked a key milestone as it represented the first large-scale adoption of its Shield technology by government clients.
INTZ currently carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at a loss of $2.19 per share, unchanged in the past 30 days.
Price and Consensus: INTZ
Cisco: Headquartered in San Jose, CA, Cisco is an IP-based networking company offering products and services to service providers, companies, commercial users and individuals. Cisco is gaining from increasing subscription revenues, which now account for more than half of its total revenues. The addition of Splunk further enhances the recurring revenue base of the company. The acquisition expanded Cisco’s portfolio of software-based solutions, contributing more than $4 billion in annualized recurring revenues and making it one of the largest software companies in the world. The launch of AI-powered Hypershield, which combines security and networking, strengthened Cisco’s security portfolio.
However, sluggish networking sales, primarily due to lackluster demand from telecommunication and cable services providers, as well as increasing competition, remain concerns. Cisco’s prospects are further challenged in the AI-driven networking space due to stiffening competition aggravated by Hewlett Packard’s deal to acquire Juniper.
In fiscal 2024, subscription revenues were $27.4 billion (including Splunk), representing 51% of total revenues. In the last reported quarter, total revenues declined 10.3% year over year to $13.6 billion but beat the consensus mark by 0.9%. Networking revenues plunged 28% year over year to $6.8 billion, while Service revenues moved up 6.5% year over year to $3.78 billion. For the current quarter, revenues are expected to be between $13.65 billion and $13.85 billion. Non-GAAP gross margin is anticipated between 67% and 68% for the quarter. Non-GAAP earnings are anticipated between 86 cents and 88 cents per share.
At present, CSCO carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $3.56 per share, improved from an estimate of $3.54 per share in the past 60 days.
Price and Consensus: CSCO
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Keep an Eye on These 3 Networking Stocks From a Thriving Industry
Increasing focus on cloud computing, network security, big data and cloud storage is expected to boost the Zacks Computer - Networking industry participants’ performance amid the rapid proliferation of AI technology. The players in this space are focused on capitalizing on the multibillion-dollar AI infrastructure opportunity. The accelerated deployment of 5G is driving the proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS), Augmented Reality/Virtual Reality (AR/VR) devices and 5G smartphones, calling for solid networking infrastructure. The Wi-Fi 7 upgrade cycle will also act as a growth catalyst. This spurred the demand for networking products, favoring prospects of prominent industry players like Cisco (CSCO - Free Report) , NetScout Systems (NTCT - Free Report) and Intrusion Inc (INTZ - Free Report) . Weak global economic conditions, weak demand from telco and cable customers and volatile supply chain dynamics continue to be concerns. Also, client inventory reduction efforts are affecting some participants' performance.
Industry Description
The Zacks Computer - Networking industry comprises companies that offer networking and Internet-connected products, including wireless (WiFi and Long-Term Evolution or LTE), Ethernet and powerline, focusing on dependability and ease of use. The products are available in numerous configurations to cater to the changing requirements of consumers in each geographic territory where it operates. Some industry players also provide mission-critical IoT solutions and network security services to help clients build next-generation connected products and implement and manage critical communications infrastructures in demanding environments with enhanced safety levels. Focus on developing IoT sensors, drones and wearables amid increasing demand for cloud computing-based contact tracing applications is driving the industry.
4 Trends Influencing the Industry's Future
Innovation in Networking Technologies is Opening New Business Avenues: The growing clout of Smart Home and Internet-connected products such as Smart TVs, game consoles, High Definition (HD) streaming players, security cameras, thermostats and smoke detectors continue to drive innovations in networking. The rapid proliferation of IoT, the increasing popularity of smart connected devices and the growing adoption of cloud computing in network security fuel the demand for an efficient network support infrastructure. The advancements in AI and ML and the high adoption of cloud applications hold immense potential for companies in the industry. Enterprises are striving to manage fixed and wireless devices in a secured infrastructure. To address the demand, industry firms are driving innovation in networking technologies, including network virtualization and Software-Defined Networking (SDN), which favor growth prospects.
Rapid Deployment of 5G to Boost Growth Prospects: Adopting a hybrid/flexible work model triggered the demand for network-intensive applications like video conferencing and cloud services. This accelerated 5G deployment globally. The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support growth in data services. Efforts to develop smart connected homes, hospitals, factories, buildings, cities and self-driving vehicles bode well for industry players. These firms invest heavily in LTE, broadband and fiber to provide additional capacity and improve Internet and wireless networks. These initiatives hold promise.
Wi-Fi 7 Upgrade Cycle to Drive Momentum: Brisk technological advancement, dynamic products, high-speed connectivity, low latency and evolving industry standards define the Computer Networking industry. The growing clout of the latest Wi-Fi 6E-compliant residential gateways, Wi-Fi routers, set-top boxes and wireless range extenders is a testament to the same. The increasing demand to connect more devices to the network has been driving demand for Wi-Fi 6E devices. Wi-Fi 6E addresses Wi-Fi spectrum shortage issues by providing continuous channel bandwidth to support a higher number of connected devices without compromising speed. Moreover, the rollout of Wi-Fi 7 bodes well for the companies in this space.
Macroeconomic Turmoil Concerning: Global macroeconomic weakness and volatile supply chain dynamics are persistent concerns. Inflation could affect spending across small and medium-sized businesses globally, and uncertainty in business visibility could dent the industry’s performance in the near term.
Zacks Industry Rank Indicates Bright Near-Term Prospects
The Zacks Computer - Networking Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #76, positioning it in the top 30% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P 500 and the Sector
The Zacks Computer – Networking industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has declined 9.6% over this period against the broader sector’s rally of 34.6%. The S&P 500 has appreciated 27.1% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings ratio (P/E), which is a common multiple for valuing Computer – Networking stocks, the industry is currently trading at 16.94X compared with the S&P 500’s 21.48X. It is also below the sector’s forward-12-month P/E of 25.84X.
In the past five years, the industry traded as high as 20.33X and as low as 12.56X, with media being at 15.27X, as the charts below show.
Forward 12-Month P/E Ratio
3 Computer - Networking Stocks to Keep an Eye on
NetScout Systems: This Westford, MA-based company provides performance management, cybersecurity and DDoS protection solutions. Demand trends for Service Assurance and Cybersecurity product lines for the long term remain healthy. Extensive cost-cutting efforts to manage discretionary spending bodes well.
Recently, NETSCOUT announced that it was collaborating with its partner ecosystem (Cisco, Palo Alto Networks, ServiceNow, and others) to integrate its AI-ready data and deliver the insights needed by clients to drive improved results. Earlier this year, the company unveiled a new suite of Business Edge Observability products, including the nGenius Edge Sensor and Remote InfiniStreamNG solutions. This comprehensive suite of solutions will aid in enabling IT observability for remote locations at the digital edge. It also expanded its Arbor Cloud DDoS attack mitigation network with the addition of a new facility in Toronto, taking the total count to 16 scrubbing centers globally. For fiscal 2025, the company expects revenues in the range of $800 million to $830 million, while non-GAAP earnings per share are forecast to be between $2.10 and $2.30.
NTCT currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $2.20 per share, improved from an estimate of $2.10 per share in the past 60 days.
Price and Consensus: NTCT
Intrusion: Headquartered in Plano, TX, Intrusion is a cybersecurity company. Intrusion’s suite of security products helps businesses protect critical information assets by quickly detecting, analyzing and responding to network- and host-based attacks.
The company is witnessing strong momentum for its Shield products. The addition of a government contract for Shield and consulting services and the signing of several new logos over the past few quarters benefited the top-line performance in the second quarter of 2024. Revenues surged 29% sequentially. Intrusion expanded its customer base within the government sector by securing a significant new order for Intrusion Shield. This marked a key milestone as it represented the first large-scale adoption of its Shield technology by government clients.
INTZ currently carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at a loss of $2.19 per share, unchanged in the past 30 days.
Price and Consensus: INTZ
However, sluggish networking sales, primarily due to lackluster demand from telecommunication and cable services providers, as well as increasing competition, remain concerns. Cisco’s prospects are further challenged in the AI-driven networking space due to stiffening competition aggravated by Hewlett Packard’s deal to acquire Juniper.
In fiscal 2024, subscription revenues were $27.4 billion (including Splunk), representing 51% of total revenues. In the last reported quarter, total revenues declined 10.3% year over year to $13.6 billion but beat the consensus mark by 0.9%. Networking revenues plunged 28% year over year to $6.8 billion, while Service revenues moved up 6.5% year over year to $3.78 billion. For the current quarter, revenues are expected to be between $13.65 billion and $13.85 billion. Non-GAAP gross margin is anticipated between 67% and 68% for the quarter. Non-GAAP earnings are anticipated between 86 cents and 88 cents per share.
At present, CSCO carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $3.56 per share, improved from an estimate of $3.54 per share in the past 60 days.
Price and Consensus: CSCO