Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Techplayer who wrote (35198)	5/9/2000 11:44:00 PM
From: The Other Analyst	Respond to of 77397

Here's a suggestion for valuation analysis. Project the S&P 500 earnings out 100 years. Solve for the the earnings growth rate, payout ratio, discount rate, and all that to come up with a set of projections that fit. Then make some adjustments for Cisco and project its earnings out for 100 years. (The reason for going out 100 years it then it doesn't really matter what happens for a terminal value.) In order to justify CSCO's value today, what do the Cisco earnings have to be as a percent of the S&P 500 earnings at an assumed steady-state? I assumed CSCO grows 30% for the next 5 years and then gradually slows. SP500 grows 15% for 5 years and then slows. I used 1.4 for the Cisco beta vs 1.00 for the SP500. Cisco beta declines over time. The answer I came up with is that Cisco has to grow to eventually be a little over 7% of the S&P 500 earnings. Anyone want to argue how that is a reasonable projection? (not best case, just reasonable most likely case) One company is 7% of the total. AND sustains that share indefinitely. If you want to assume that Cisco cannot sustain the 7% level and eventually drops, then the share of profits would have to be even higher. This analysis is with CSCO at $63. Not the $80 it got to earlier this year.