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

To: RetiredNow who wrote (57770)	2/21/2002 9:46:04 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Woah, GIGO alert. What did you use as your input cash flows? How did you arrive at that initial figure? You seem to have fallen for the bait and my guess is that you are using "discounted operating cash flows", which are not the same as "Discounted Free Cash Flows", and which are only a proxy for accumulated profit (real growth of Shareholder Equity)... which is what we get "Per Share" on divie-it-up-day. Here's a bet: (a) you haven't fully factored in the full cost of equity financing, and (b) you are mistaking "squeezing the assets" sloshing of cash between buckets for "earning profit" free cash flow. Here's why. When I retrofit your growth factors (13/30/25/20/15x5/10x5/5x5), your discount rate (10%), the dilution rate (3%) onto a $13 "DCF", I need CF in year zero of about 5 Billions. And I do a sanity check on that number as a reasonable proxy for Cisco's profitability. In the last six months, Cisco's shareholder equity has grown by 1.0 Billions. No major writedowns. Market flat. So if they've generated 2.5 Billions in actual cash flow, where has the extra 1.5 Billion gone? Answer: A lot of that cash flow has been from the right pocket to the left pocket. Leads me to conclude (b) It's not profit, but squeezing the business. Then there's my guess (a): The maximum annual profitability that the company can be generating 1.0 B$ / six months. I say maximum because some of this came from shareholders, and some came from Uncle Sam as a tax benefit. We just finished figuring out half of that (hint). I won't bother complicating things to discuss the other half. So even if I close a blind eye to all that we have learned from stock options so far and neglect to factor any of that costly compensation out, then plugging in 1.0 B$/0.5 year into the same discounting equation I get a value creation for shareholders of $4.89 through year 2025. Even using 2x as a "fair" price as you suggested yesterday still gives me a single digit share price. So I'm really very curious what you used as year 1 cash flow value and where it came from. John P.S. If you really think Cisco is going to $25, why on earth aren't you buying at $17 for a 56% gain in 10 months???