John, Cisco is a great company.
BUT, I estimate FCF (before interest and other income) at around $.88/share (undiluted) for FY 1999. That number is considerably higher than earnings, so this is not a situation where funny accounting leads to inflated earnings.
Nevertheless, the price of the stock seems stratospheric to me. Based on consensus growth estimates of 30% for the next five years, and a risk-adjusted discount rate of 21%, coupled with gradual slowing over the following 15 years to 15% per annum, I would think that a multiple of cash flow of 40x would be reasonable if you are an optimist. That leads to a price of around $45, on a forward basis (i.e., 30% growth in FCF). When you extract the overhang of options (which on a non-diluted basis have added about 10% per annum to the stock o/s) I think that the most exuberant analytical bull might conclude that the stock is worth no more than $40. Of course, if you want to take the time to do a pro-forma estimate of the stock likely to be o/s 5 years from now you might get a much lower number -- like around $30 - $35.
TTFN,
CTC |
