mindmeld Your conclusion is broken too.
LOL... I'm having a field day today.... LOL...
I used 20% Free cash flow to revenue. Discount to present value using 10%
Sum of the present value from 2002 through 2030 is 110 B$
Divide by 20.851 Billion shares
Get about $5.28 per share
Compare to: "...divide that figure by the 2030 ending o/s share figure (20.851 Billion), for a total of $12.48 per share"??
How the heck did you get 12.48??? Even using your Free Cash Flow to Revenue of 12.6% I get $3.32, not $12.48!!!
I think you should check your excel spreadsheet. Mine's attached below.
And even if we forget the errors in your logic and add in book value at 3.75 per share, we still only get about $9 per share at the top end. Using your 12.6% FCF to Revenue we get $7.07 per share.
Here's a look at how it goes given various input assumptions
% FCF PV FCF PV FCF/Sh Book Total
B$ $/sh $/sh $/sh
20% $110.00 $5.28 $3.75 $9.03
18% $99.00 $4.75 $3.75 $8.50
15% $82.50 $3.96 $3.75 $7.71
12.6% $69.30 $3.32 $3.75 $7.07
12% $66.00 $3.17 $3.75 $6.92
9% $49.50 $2.37 $3.75 $6.12
As for buyback of shares, I think you forgot something. If Cisco buys back shares, some of that "free cash flow" gets slurped up buying back the shares and isn't available to buy the stuff that turns into assets that shareholders can divy up by their undiluted shares in 2030. If we assume they buy them back for what they are worth (future present value of future future cash flows), then the end value doesn't change. I think if you played around with a (correct) spreadsheet, you could convince yourself of this fact.
Secondly, the current equity of the company is 28 B$, add to that 110 B$ in PV free cash flow for a total of 138 B$ and THEN divide by 20.8 B shares. Gets you closer to $6.62 per share. Oops.
Third, about 7 B$ of that 28 B$ is somewhat "soft" (goodwill, inventories, computer equipment...)... so it's not exactly smart to factor it *all* in.
Finally, when we take a look at the possibility that Cisco's free cash flow to revenue number is inflated by some as-yet-unearthed but very clever pixilation (figured out what it is yet?), I doubt very much you can conclude 20% is a 'fair' number.
So now if we add these in and even assume your 10% discount rate should be the same as a T-Bill you get a "fair" value for Cisco of:
% FCF PV FCF Curr Book PV Total PV Tot/Sh
20% 184.00 21.00 205.00 9.83
16% 147.20 21.00 168.20 8.07
12% 110.40 21.00 131.40 6.30
10% 92.00 21.00 113.00 5.42
8% 73.60 21.00 94.60 4.54
6% 55.20 21.00 76.20 3.65
So really, even if we assume a discount rate of 5.75% and a FCF/Revenue ratio of 10%, I have to conclude that you're the wise one for not buying in at $15.
And for completeness, my calculation spreadsheet is below. Same recipe you used for revenues (-13%, 15%, 20%, 25%, 20%, 10% & 5% thereafter), plus 10% discount rate. But this example has my FCF:Revenue ratio of 20% vs your 12.6%
The only column that isn't explanatory is the one labeled "PV @ 10%" which is the conversion factor of dollars in year X into 2002 dollars at 10% discount rate.
Year Growth Revenue FCF PV PV FCF
% B$ B$ @ B$(2002)
Assumptions: 22.0 20% 10%
2002 -13% 19.1 3.8 1.000 3.8
2003 15% 22.0 4.4 0.909 4.0
2004 20% 26.4 5.3 0.826 4.4
2005 25 33.0 6.6 0.751 5.0
2006 20% 39.6 7.9 0.683 5.4
2007 15% 45.6 9.1 0.621 5.7
2008 10% 50.1 10.0 0.564 5.7
2009 5% 52.6 10.5 0.513 5.4
2010 5% 55.3 11.1 0.467 5.2
2011 5% 58.0 11.6 0.424 4.9
2012 5% 60.9 12.2 0.386 4.7
2013 5% 64.0 12.8 0.350 4.5
2014 5% 67.2 13.4 0.319 4.3
2015 5% 70.5 14.1 0.290 4.1
2016 5% 74.0 14.8 0.263 3.9
2017 5% 77.8 15.6 0.239 3.7
2018 5% 81.6 16.3 0.218 3.6
2019 5% 85.7 17.1 0.198 3.4
2020 5% 90.0 18.0 0.180 3.2
2021 5% 94.5 18.9 0.164 3.1
2022 5% 99.2 19.8 0.149 3.0
2023 5% 104.2 20.8 0.135 2.8
2024 5% 109.4 21.9 0.123 2.7
2025 5% 114.9 23.0 0.112 2.6
2026 5% 120.6 24.1 0.102 2.4
2027 5% 126.6 25.3 0.092 2.3
2028 5% 133.0 26.6 0.084 2.2
2029 5% 139.6 27.9 0.076 2.1
2030 5% 146.6 29.3 0.069 2.0
Total 110.0
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