OK. To bolster what I said in the previous post, I looked up
operating cash flow figures for Lucent and Cisco from their 10Ks.
Here are the results:
Operating Cash Flows (in Millions)
YE 94 95 96 97 98 Total
---------------------------------------------------
Cisco 318 396 1,063 1,442 2,881 6,100
Lucent 1,579 478 979 1,946 1,366 6,348
The thing to note from the information above is that Cisco's
operating cash flows are a helluva lot smoother and are growing
faster than Lucent's. The other thing to note is that Cisco is
generating tremendous cashflows (almost equal to Lucent's over the 5
year period) with 1/3 the revenue that Lucent has. In
addition, Cisco is growing revenues at a much faster rate than
Lucent (Cisco YOY growth = 40%, whereas, Lucent YOY growth = 8%).
So put 2 and 2 together. Cisco will eventually be as big as Lucent in
terms of revenue, but they will be alot more profitable and will
generate more cashflows. Anyone who knows the old style of valuation,
discounted cash flows, recognizes that this means Cisco is more
valuable than Lucent. That is why Cisco has a higher PE than
Lucent...to account for the higher cash flows. |
