|Shares Out. (in M):||5,528||P/E||13.2x||11.4x|
|Market Cap (in $M):||100,167||P/FCF||11.0x||11.0x|
|Net Debt (in $M):||-25,000||EBIT||9,164||8,705|
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Street EPS estimates for the year ended 7/31/11 and 7/31/12 are $1.60 and 1.76 respectively. The company has $4.47 in net cash per share. At the current $18 stock price, netting out an estimated value of $3.65 for the excess $4.47 per share in cash, CSCO is trading at 9x 2011 Street EPS estimates. If we adjust the Street estimates for stock option expense and add back non-cash amortization expenses, the shares are trading at about 10x 2011 EPS. In comparison, the S&P 500 currently trades for over 15x 2011 EPS.
The company is facing macro-economic headwinds and increasing competitive pressures which are likely to impact margins and growth. However, given the company's long history of profitable growth, the diversity of the business in terms of product and geography, and the company's high margins/market share in a growing industry, the valuation today is attractive.
For our target price, we apply a 14x multiple to the $1.60 of 2011 earnings and add back $3.65 of cash. Our target is $26, up over 40% from today. At today's price, we view our downside potential at around $15, for an attractive upside/downside ratio.
The company has repurchased ~$65B of stock in past decade. Even after adjusting for an $11B of cash stock expense due to issued shares over this period of time, the amount of substantial. Last November, they authorized an additional $10B for buybacks. The company places buybacks front and center in its press-releases, which is a good sign in our view. From the most recent earnings release: "During the second quarter of fiscal 2011, Cisco repurchased 89 million shares of common stock under the stock repurchase program at an average price of $20.15 per share for an aggregate purchase price of $1.8 billion. As of January 29, 2011, Cisco had repurchased and retired 3.3 billion shares of Cisco common stock at an average price of $20.81 per share for an aggregate purchase price of approximately $69.3 billion since the inception of the stock repurchase program. On November 18, 2010, Cisco's board of directors authorized up to $10 billion in additional repurchases of its common stock under the stock repurchase program, increasing the authorized amount of aggregate stock repurchases to $82 billion. The remaining authorized amount for stock repurchases under this program, including this additional authorization, is approximately $12.7 billion with no termination date."
The company is planning a new dividend. While they have not had one in the past, they are planning to initiate a 1-2% dividend yield in 2011. This may be a mild positive for the company.There is abundant research on the company which we suggest you review. We provides some of our notes below, but would welcome any comments or questions as this is one of the prime advantages of VIC.
Business quality - margins, market share, growth
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