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: Stock Farmer who wrote (57897)	2/23/2002 8:00:28 AM
From: RetiredNow	Read Replies (3) \| Respond to of 77400

OK, John. I have a couple of things we can disagree on. :) LOL. Actually, I do have some really hard questions I want to ask you for your opinion on. 1) Isn't it odd that you and I and others on this thread are the only smart ones when it comes to this whole stock option scheme? Why do the Wall Street analysts think nothing of it? I kid about how stupid they are all the time, but in reality some of your brightest finance minds work on Wall Street. Why aren't they as concerned as you? Of 33 analysts tracking this stock, only 1 has a sell recommendation; 16 have buy and 10 have strong buy. The average 1 year stock price target estimate by all of these analysts is $23.42. Do you honestly believe you're on to something that the smartest people on Wall Street haven't figured out yet? Or maybe the've done DCF estimates like mine and think that you are overestimating the impact? 2) In my DCF valuation model, you argued that my starting adjusted operating cash flow figure for this year was way too high. I said it would be around $3.6 billion for FY'02 and you said it should be more like $1-2 billion. How do you explain the fact that in the most recent quarter alone Cisco generated in excess of $2 billion in cold hard cash, while the number of shares exercised and the resulting tax benefit remained anemic? If you take the first quarter as a guide, then Cisco's 2nd quarter only saw around $40 million in tax benefit from options exercise. In addition, the stock price has remained fairly depressed in the second quarter, which leads me to believe that cash contribution from options will also be insignificant in the second quarter (we can verify that in the 10Q). Thus my guess that it remained flat from the first quarter is probable. So, the likelihood is that I am being VERY conservative in saying that Cisco will only generate $3.6 billion in adjusted cash flows this fiscal year. Already in the first two quarters, Cisco has increased cash and investments by $2.5 billion with little to no help from stock options exercises. At that rate, cash flows will be much higher than even I estimated, which means my value estimate is low. For example, if I bump up adj OCF as a %age of revs to 25%, I get a price of $17.08. I don't think that's as likely as 19% and $12.98, but the possibility is there. So, I'm having a hard time concluding anything other than my DCF analysis for operations going forward is a more likely scenario than yours. Therefore, I believe $12.98 is a pretty darn good price for this stock, which Cisco is trading fairly close to right now. Thoughts?