I don't incorporate cash in DCF or Buffettology calculations. The reason is that both are looking at 10+ year results and it pretty much assumes that this cash will be needed to achieve the results - whether for acquisitions or cap investment, etc. You could make an argument that CSCO could distribute the cash to shareholders right now and still produce the same cash flow / earnings growth going forward. I disagree.
I went to trefis.com and played with their model. I am not affiliated with Trefis, but I think they have pretty neat tool to play with (you may have to register, free tool is available for limited set of companies, etc.)
Note that they are using DCF, but they are predicting a "fair value" to which the stock should rise based on their model. They are NOT doing the classical DCF which gives you a price at which DCF would exceed the discount factor. Their price ($24 in case of CSCO) is a TARGET price, classical DCF price is a BUY price. Don't mix the two, the values they produce are not directly comparable.
So I changed parameters in their model to yield the classical DCF results, changed some values and got the price $16.37. This is classical DCF BUY price, i.e. if you buy below $16.37, you will get ~15% return. I think even these assumptions are a bit optimistic, but it jives well with my other calculations. ;)
Not sure if this link to my model will work, but I will post it anyway: trefis.com |
