Cisco Upside as CEO Swan Song Starts? Chambers’ 200% Pay Raise Suggests Yes.

It could be a good year for positive “surprises” from Cisco.  This quarter (ends October, reported early November) marks the start of their Fiscal Year 2014.  Chambers is age 64 going on 65.  And Cisco plainly needs new leadership.

I expect him to pull out all the stops to go out on a high note when the fat lady sings (with other mixed metaphors trailing behind).  I’ll probably sell into the strength.  

  • I’d read last quarter’s deck-clearing exercise as the likely start of Cisco’s CEO John Chambers takeoff run toward retirement (maybe with an eye toward a Cabinet post in 2016?).
  • A MASSIVE increase in his base salary from $375k to $1.1m looks like another sign he is on his way out.  John has always taken a low base salary over his @18 years as CEO.  It has been one of his hallmarks (and an admirable one).  Why the huge increase now?
  • I would guess it has to do with some sort of “final year salary level” in the Cisco executive retirement plan.  Sort’ve like Boston cops used to do prodigious overtime “details” just before retiring to goose up their pensions’ final salary calculation.  (In this case, I would guess that Chambers had this more or less forced on him.  I do think Cisco needs new leadership, but John has never been a money grubber).

How far can Cisco go?  One approach is to look at its 2.9% dividend yield (dividend earnings as a % of the share price) versus the S&P’s 1.97%.  Cisco would have to go up by nearly 50% (to $34 from $23.25) to take the dividend yield to the current market level.

Do I really expect another 50% run-up in the stock (it is already up @70% from its lows at $15-$16 in August 2012)?  Not really.  But John can probably engineer a pretty good run from here.  And the 2.9% yield does give some downside support for the stock if I’m wrong.

With the huge caveats that:

  • He could be sticking around and just progressively losing it.  Sort’ve like Zimbabwe’s Robert Mugabe…
  • The government shutdown could make this quarter’s numbers pretty ugly (although it’d just push-out revenue into 2Q).  Unless the House Republicans come to their sense.  Which presumes they have “senses” to come to….
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