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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 72.34-2.9%Nov 4 3:59 PM EST
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To: kvkkc1 who wrote (55135)9/8/2001 10:06:01 PM
From: Stock Farmer  Read Replies (3) of 77397
 
Wishful thinking. Using Cisco in 1995 as our own reference point, single digits aren't unreasonable.

The math is very simple. And very correct.

In 1995 Cisco had a PE of 36.63 ($56/share @ $1.54 GAAP EPS)

If Cisco was trading at a PE of 36.36 against trailing pro-forma earnings today then it would trade at $15.47 - using $0.43 pro-forma EPS just announced.

But this math is not yet correct. Because it compares pro-forma earnings with GAAP earnings. In truth, we should do GAAP to GAAP or Pro-forma to Pro-forma. Which is difficult but not impossible.

The 2001 pro-forma earnings of $0.43 exclude some "one time" charges that also happened "one time" back in 1995, and some other "one time" charges that have only occurred once.

Those recurring one-time charges amount to 1.9 B$ in 2001, or $0.27 per share "benefit" to the 2001 EPS figure. Using 7,196 mm shares in case you want to check my math.

So if we want a more fair apples-to-apples comparison, the 2001 Shannon-adjusted-to-1995-GAAP-re-pro-forma trailing earnings are actually $0.16

And when we apply our trusty comparable 36.36 PE to this dubious figure we get $5.82 as a comparable price.

If we assume that AG's reduction in the cost of money justifies a higher multiple, offset by the degree to which Cisco's growth prospects have diminished (do we really expect it to be doing 85 B$ worth of business in 2004?)... maybe we want to call that even.

So my 'half' from $15 was not so far off a rigorously computed number.

It should not be so difficult to see. Even if it is so difficult to accept.

John.
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