Cisco Systems, Inc. (CSCO)

Discount cash flow analysis

Sell Overvalued by 9.1%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Cisco Systems, Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2008 2009 2010 2011 2012 2013 2014 2015
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $28.78 $28.34 $27.92
Terminal Growth% 0 $28.95 $28.51 $28.08
  +1% $29.13 $28.68 $28.25

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $32.32 (undervalued by 3.06%) - 12 months ago
  • RichC created a new valuation of $25.39 (undervalued by 84.92%) - 6 years ago
  • RichC created a new valuation of $23.25 (undervalued by 50.1%) - 6 years ago
  • RichC created a new valuation of $23.25 (undervalued by 50.1%) - 6 years ago
  • RichC created a new valuation of $24.38 (undervalued by 48.84%) - over 6 years ago
  • SethWellbourne created a new valuation of $22.16 (overvalued by 16.69%) - over 7 years ago
  • GordonGekko created a new valuation of $27.71 (undervalued by 6.45%) - over 7 years ago
  • sartzberger created a new valuation of $18.45 (overvalued by 19.68%) - over 7 years ago
  • ecombarnardnet created a new valuation of $21.76 (overvalued by 3.59%) - 8 years ago
  • Lespe959 created a new valuation of $20.57 (undervalued by 9.88%) - over 8 years ago
  • SethWellbourne created a new valuation of $10.01 (overvalued by 38.63%) - over 8 years ago
  • GordonGekko created a new valuation of $20.39 (undervalued by 20.29%) - over 8 years ago
  • GordonGekko created a new valuation of $20.44 (undervalued by 20.59%) - over 8 years ago
  • savov created a new valuation of $16.72 (overvalued by 1.53%) - over 8 years ago
  • GordonGekko created a new valuation of $19.60 (undervalued by 19.15%) - almost 9 years ago
  • charmonman created a new valuation of $21.40 (undervalued by 24.56%) - almost 9 years ago
  • KiwiEMH created a new valuation of $17.84 (undervalued by 2.47%) - almost 9 years ago
  • DharmaWarrior created a new valuation of $30.20 (undervalued by 38.53%) - 9 years ago
  • TheCrunchBlog created a new valuation of $28.51 (undervalued by 19.14%) - 9 years ago
  • GordonGekko created a new valuation of $29.73 (undervalued by 24.24%) - 9 years ago
  • KiwiEMH created a new valuation of $22.24 (undervalued by 0.32%) - 9 years ago
  • GordonGekko created a new valuation of $23.84 (undervalued by 9.56%) - over 9 years ago
  • GordonGekko created a new valuation of $26.92 (undervalued by 0.94%) - over 9 years ago
  • silas created a new valuation of $18.26 (overvalued by 27.97%) - over 9 years ago

Comments

Cisco (CSCO) – our numbers make it look cheap

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/08/cisco-csco-our-numbers-make-it-look-cheap/

CSCO grew revenues from US$22.0 billion in 2004 to US$39.5 billion in 2008 – a 15.7% compound annual growth rate. Our assumptions of revenues for the next three years are US$43.5 billion in 2009 growing to US$52.5 billion in 2011 – a 10% compound annual growth rate. We have projected EBITDA margins to grow from 29.0% in 2009 to 30.0% in 2011. We have used a terminal growth rate of 4.5%. We calculated this terminal growth rate based on year three growth of 10% dropping to a 4.0% stable growth rate by year 10. We used a terminal capital expenditure number of US$1.25 billion. We have used a WACC (discount rate) of 10.5%.

The key assumptions as we see them are:

CSCO Revenues for the next three years. We believe that 10% per annum growth is a reasonable estimate to start with.

CSCO EBITDA margins. We are comfortable with a slight rise. 2011 EBITDA margins in the 29-31% range appear reasonable.

CSCO WACC. We view CSCO’s WACC in the 10-11% range. We took a mid-point.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 165,905
Net Debt (Long-term borrowings less cash): -19,342
Equity Value: 141,357
Number of Shares Outstanding: 5,907,000,000
Calculated value per share: $28.51

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.