Archive for the ‘Cisco’ Category

Running The Numbers – Cisco ($CSCO) near a 52-week high but justified

Monday, April 5th, 2010

Cisco ($CSCO) are featured in Barron’s looking at how their revenues could hit the US$100 billion level (2009 revenues US$36.1 billion). With the $CSCO share price over US

$25 – 52-week range US$16.30-26.85 – we decided to have a quick look.

Valuecruncher Interactive Analysts Report For Cisco ($CSCO)

We have the comparator group set as Hewlett-Packard ($HPQ), Lexmark ($LXK), Intermec ($IN) and Netezza ($NZ). You can change these peer companies on the site. For example you could add:

  1. Microsoft ($MSFT)Interactive Analyst Report For $MSFT
  2. IBM ($IBM)Interactive Analyst Report For $IBM
  3. Hewlett-Packard ($HPQ)Interactive Analyst Report For $HPQ
  4. Juniper Networks ($JNPR)Interactive Analyst Report For $JNPR

So what do we think?

Discounted Cash Flow Valuation

We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$27.71 for $CSCO – 6.5% above the current share price. We see $CSCO slightly undervalued at the moment. But how about compared to a peer group?

Comparison Analysis

I changed the peer group companies to $MSFT, $IBM, $HPQ and $JNPR as noted above. I am going to look at only one of the metrics we use at Valuecruncher – EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet – market capitalization doesn’t capture different capital structures when comparing companies. EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set.

On an EV/EBITDA basis $CSCO is trading at 13.6x ($CSCO is being valued at 13.6x last year’s profit at the EBITDA line). A dollar of $CSCO EBITDA is worth more a dollar of $MSFT, $IBM or $HPQ EBITDA. $CSCO’s EV/EBITDA is less than $JNPR’s but that relates to greater growth expectations and a poor 2009 financial year for $JNPR. $CSCO makes more margin at the EBITDA line than any of these comparators except $MSFT. The comparators look about right.

csco-blog-post-20100404

Summary

Based on our DCF valuation – $CSCO looks slightly undervalued. Looking at some comparators – the market is valuing $CSCO in-line with expectations – compared to the peer group. $CSCO is trading close to 52-week highs – but this looks justified.

Disclosure: no positions.


Running The Numbers – Cisco ($CSCO) Cheap Below US$20 A Share

Tuesday, March 31st, 2009

Cisco Systems ($CSCO) has traditionally been a designer, manufacturer and seller of network and communications technology and services. Two weeks ago the company generic cialis no prescription

83736001.html?mg=com-wsj”>announced a significant shift in strategy by beginning to compete with Hewlett-Packard ($HPQ) in the broader server market. A week earlier $CSCO had announced a deeper move into the consumer electronics business with the acquisition of Pure Digital. Very interesting times for $CSCO. We decided to have a look at some numbers for $CSCO to estimate an intrinsic valuation for the shares.

Valuecruncher Interactive Analyst Report For $CSCO – New Format

Valuecruncher produces a valuation of US$20.39 for $CSCO. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 20.3% above the current share price of US$16.95.

Assumptions

  • Revenue: Reuters aggregates 27 analysts covering $CSCO and the mean estimates of 2009 and 2010 revenues are US$35.9 billion and US$34.8 billion respectively. For our analysis we have used US$36.0 billion in 2009, US$35.0 billion in 2010 and US$40.0 billion in 2011.
  • Profitability: We have used an EBITDA margin of 28.0% in 2009 dropping to 26.5% in 2010 then rising back to 28% in 2011. Reuters has $CSCO‘s EBITD margin at 27.1% last year and an average of 30.6% over the last five-years.
  • Capital Expenditure: We have assumed capital expenditures of US$1.15 billion in 2009, US$1.05 billion in 2010 then US$1.35 billion per annum moving forward.
  • Discount Rate: 10.5%.
  • Terminal Growth Rate: 4.0%. In our assumptions we have 2010/11 revenue growth at 14.3% – we have assumed that growth eventually slows to a 3.0% long-term stable growth rate.

Our analysis incorporates the cash and debt on the $CSCO balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say? Our model is interactive – you can change any of our assumptions.

Disclosure: None


Cisco (CSCO) – our numbers make it look cheap

Friday, August 8th, 2008

Last week Cisco (CSCO) announced their quarter 4 results. The response was pretty positive but analysts were concerned about a lack of guidance from the data-networking equipment and software giant.

View the CSCO WikiChart on Wikinvest

At Valuecruncher we decided to put some numbers around the potential future performance of CSCO using our on-line valuation tool.

CSCO Valuation

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.

Valuecruncher valuation model of CSCO with interactive assumptions

Our analysis incorporates the cash and debt on the CSCO balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of US$28.51 per share which is 19% above the current share price of US$23.93.

Based on our analysis the current share price looks cheap. Play with our assumptions – what does your analysis say?

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.

You are currently browsing the archives for the Cisco category.

Subscribe

Blog posts Click for updates

Categories