DCF Studio

    CSCO · NMS · Technology

    Cisco Systems, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 39.13

    Market price

    USD 109.51

    Implied upside

    -64.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages 1.64% of revenue against depreciation of 4.17%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 4.17% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Current EV/EBITDA of 23.9x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 39.13-64.3%
    Exit multiple
    USD 81.71-25.4%
    Market price
    USD 109.51

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn7bn14bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 65.6bnUSD 67.9bnUSD 70.4bnUSD 72.9bnUSD 75.5bn+3.6%
    EBITUSD 16.2bnUSD 16.8bnUSD 17.4bnUSD 18.0bnUSD 18.6bn+3.6%
    NOPATUSD 13.6bnUSD 14.0bnUSD 14.5bnUSD 15.1bnUSD 15.6bn+3.6%
    Add depreciation & amortisationUSD 2.7bnUSD 2.8bnUSD 2.9bnUSD 3.0bnUSD 3.1bn+3.6%
    Less capital expenditureUSD -2.7bnUSD -2.8bnUSD -2.9bnUSD -3.0bnUSD -3.1bn+3.6%
    Less increase in working capitalUSD -1.0bnUSD -1.1bnUSD -1.1bnUSD -1.1bnUSD -1.2bn+3.6%
    Free cashflow to firmUSD 12.5bnUSD 13.0bnUSD 13.4bnUSD 13.9bnUSD 14.4bn+3.6%
    Discount factor0.95320.86590.78670.71470.6493-
    Present valueUSD 11.9bnUSD 11.2bnUSD 10.6bnUSD 9.9bnUSD 9.4bn-5.9%
    Present Value Of The ForecastUSD 53.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.995Reported 0.992, pulled toward 1.0 (Blume)
    Cost of equity10.47%Risk-free + beta x equity risk premium
    Cost of debt5.10%Interest expense / average total debt
    Market capitalisationUSD 431.8bn93.6% of capital
    Total debtUSD 29.5bn6.4% of capital, book value as a proxy
    Tax rate16.4%Effective, capped at statutory
    WACC10.07%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 39.13

    68% of EV

    Forecast FCFF, final year
    USD 14.4bn
    Capex at depreciation, working capital in reinvestment
    USD 15.6bn
    Less reinvestment at g/ROIC (16.1% of NOPAT)
    USD -2.5bn
    Capitalised
    USD 13.1bn
    ROIC (reported)
    15.5%
    Terminal value, undiscounted
    USD 177.1bn
    Terminal value, discounted
    USD 115.0bn
    Enterprise value
    USD 168.0bn
    Less net debt
    USD 13.6bn
    Equity value
    USD 154.4bn

    Exit at 20.0x EBITDA

    Value per shareUSD 81.71

    84% of EV

    Terminal value, undiscounted
    USD 435.8bn
    Terminal value, discounted
    USD 283.0bn
    Enterprise value
    USD 336.1bn
    Less net debt
    USD 13.6bn
    Equity value
    USD 322.4bn

    Spread between methods: 70%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.07%49.4851.3853.6056.2459.45
    9.07%42.6643.8845.2746.8748.75
    10.07%37.4438.2439.1340.1441.29
    11.07%33.3133.8434.4235.0635.78
    12.07%29.9630.3130.6931.1031.56

    Outlined: this model. Green text: above today's price of 109.51. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.6%32.1%+28.6pp
    EBIT margin24.7%64.5%+39.8pp
    Discount rate10.1%5.3%-4.8pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.