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

To: The Phoenix who wrote (46333)	1/8/2001 11:28:57 AM
From: Wyätt Gwyön	Respond to of 77400

My point is that your opinion that CSCO will have 13B shares in 10 years is just that - an opinion and that such an assumption is as flawed as the $500 price target. Let me clarify: it is not my opinion that CSCO will have 13BB shares in 10 years; obviously, it is just a simple extrapolation from historical trends. Meant to be nothing more. If you want my opinion--which I would really call a guess since I don't feel confident enough to call it an opinion--well, my guess is that CSCO will be considered a cyclical company in 10 years and trade at a much lower PE. In my opinion, they can rely on organic businesses and become recognized as a cyclical company, or they can try to maintain the growth-company image, which will probably require them to continue buying more and more companies and further bloating the share count. So in my opinion, there is a possible low-growth, cyclical road, in which case they may eventually be able to start buying back stock (but at much, much cheaper prices than the current one); and there is a high-growth, share-bloat road, in which case, as at present, it seems they would have little if any operational cash flow growth. As to which of these two paths management will choose to pursue, your guess is as good as mine. Another possibility, and perhaps a likely one, is that they become an IBM-like entity, wherein share-count reduction is effected by taking on debt. In that case, it is theoretically possible to have, for example, 1 billion shares in 10 years (reduction of 6.5 billion shares). But at the current price of ~35 per share, 6.5 billion shares would cost 227.5 billion dollars. I am not sure there is a bank that would lend them that much money, or if their vaunted free operating cash flow is likely to throw off such a sum within the foreseeable future.

To: The Phoenix who wrote (46333)	1/8/2001 11:33:19 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Good point Gary about "opinion". Back to the original question because it is a good one. Central. How many shares do we think CSCO will have 10 years from now, and what will the market price per share be then, and why? Start with shares. We start with 7.4 B, issue 250M per year in stock options vesting over 4 years. Must take into account the 900 M outstanding options granted & unexercised, of which 80% will vest and be exercised over the next 10 years (assuming the price goes up at all, which we are hypothesizing anyhow). Let's assume cash purchase from here on in - either that or buyback of shares issued into acquisitions. That gives us 7.4 + (0.72) + ((0.25 x 10) - 3/4(250) - 1/2(250) - 1/4(250)) fully diluted, discounting unvested options. = 10.3 B shares. Round to 10B to be nice. $100 price target makes CSCO a 1 T$ market cap. $100 is annual return of 12% from here. How reasonable is this scenario? John.