Cisco Systems, Inc. (CSCO)
Discount cash flow analysis
5% margin of safety What's this?
Sensitivity matrix
|
-1% |
Discount Rate % 0% |
1% |
||
|---|---|---|---|---|
| -1% | $28.78 | $28.34 | $27.92 | |
| Terminal Growth% | 0 | $28.95 | $28.51 | $28.08 |
| +1% | $29.13 | $28.68 | $28.25 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $4.75 (overvalued by 79.96%) - 8 hours ago
- sartzberger created a new valuation of $18.45 (overvalued by 19.68%) - 16 days ago
- ecombarnardnet created a new valuation of $21.76 (overvalued by 3.59%) - 6 months ago
- Lespe959 created a new valuation of $20.57 (undervalued by 9.88%) - 9 months ago
- SethWellbourne created a new valuation of $10.01 (overvalued by 38.63%) - 10 months ago
- GordonGekko created a new valuation of $20.39 (undervalued by 20.29%) - 10 months ago
- GordonGekko created a new valuation of $20.44 (undervalued by 20.59%) - 10 months ago
- savov created a new valuation of $16.72 (overvalued by 1.53%) - 10 months ago
- GordonGekko created a new valuation of $19.60 (undervalued by 19.15%) - 1 year ago
- charmonman created a new valuation of $21.40 (undervalued by 24.56%) - 1 year ago
- KiwiEMH created a new valuation of $17.84 (undervalued by 2.47%) - 1 year ago
- DharmaWarrior created a new valuation of $30.20 (undervalued by 38.53%) - 1 year ago
- TheCrunchBlog created a new valuation of $28.51 (undervalued by 19.14%) - 1 year ago
- GordonGekko created a new valuation of $29.73 (undervalued by 24.24%) - 1 year ago
- KiwiEMH created a new valuation of $22.24 (undervalued by 0.32%) - 1 year ago
- GordonGekko created a new valuation of $23.84 (undervalued by 9.56%) - 1 year ago
- GordonGekko created a new valuation of $26.92 (undervalued by 0.94%) - 1 year ago
- silas created a new valuation of $18.26 (overvalued by 27.97%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 120,657 |
| Net Debt (Long-term borrowings less cash): | -19,342 |
| Equity Value: | 141,357 |
| Number of Shares Outstanding: | 5,907,000,000 |
| Calculated value per share: | $28.51 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/08/cisco-csco-our-numbers-make-it-look-cheap/
CSCO grew revenues from US$22.0 billion in 2004 to US$39.5 billion in 2008 – a 15.7% compound annual growth rate. Our assumptions of revenues for the next three years are US$43.5 billion in 2009 growing to US$52.5 billion in 2011 – a 10% compound annual growth rate. We have projected EBITDA margins to grow from 29.0% in 2009 to 30.0% in 2011. We have used a terminal growth rate of 4.5%. We calculated this terminal growth rate based on year three growth of 10% dropping to a 4.0% stable growth rate by year 10. We used a terminal capital expenditure number of US$1.25 billion. We have used a WACC (discount rate) of 10.5%.
The key assumptions as we see them are:
CSCO Revenues for the next three years. We believe that 10% per annum growth is a reasonable estimate to start with.
CSCO EBITDA margins. We are comfortable with a slight rise. 2011 EBITDA margins in the 29-31% range appear reasonable.
CSCO WACC. We view CSCO’s WACC in the 10-11% range. We took a mid-point.