OK, John. Looks like I have to eat my words. The Excel formula for PV was correct, but I forgot to change one of the parameters to ever increasing number of years into the future, so I was discounting every year's FCF by just one year. Argh! Anyway, so that gives me a fair value (including book value) of $6.78 at 13% FCF to sales and $8.55 at 20%. So looks like you're right!
As far as capex to depreciation discrepancies, I don't see any. I have a total of $5,270 of depreciation over the 7.5 years and purchases of PP&E of $5,621. Now the amortization of in process R&D is $3,131. So I was thinking about it and I get your point that we need the other side of that equation. So where do we find the total R&D purchased to back out of our FCF estimate? Anyway, think we can find it in the investing section of the cash flows statement under Acquisition of businesses and such, but that would take me awhile to go find it, but I'm assuming it will more than offset the amortization, so that's likely to take at least a dollar off our fair value. Then take out the goodwill and intangibles out of the book value as well, and now our estimate is around $6 with FCF to sales of our 8.9% average for the last 7.5 years. Hmmm. Even if we do say that Cisco can get back to it's 17% average in 1995, then that only means the stock is valued at $7. So either way, it's a single digit stock.
Anyway, so darn you, John. I'm running out of good reasons to dispute the low valuation of this stock. :) Give me a few days, I'll think of something else. |
