Cisco Systems Inc: $CSCO cash flow valuation update

Current Price: ~ $19/share
Projected Yield: ~ 1.29%

Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and network-management software that allow data communication among dispersed computer networks. The firm has also entered newer markets, such as video conferencing, web-based collaboration, and data center servers.

I estimated the firm's WACC today at 10.98% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2002	3946
2003	4523
2004	6508
2005	6876
2006	7127
2007	8853
2008	10821
2009	8892
2010	9165
2011	8905

Average Annual Growth FCF: ~ 11%

CAGR FCF: ~ 9%

Consensus Forecast Industry 5-Year Growth: ~ 15% per year

Consensus Forecast Company 5-Year Growth: ~ 8% per year

Starting at $8905 million FCF, assuming the company achieves a 5-year growth rate in FCF of 8% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
1	9617
2	10387
3	11218
4	12115
5	13084
Terminal Value	128721

The firm's future cash flows, discounted at a WACC of 10.98%, give a present value for the entire firm (Debt + Equity) of $117,531 million. If the firm's fair value of debt is estimated at $18500 million, then the fair value of the firm's equity could be $99031 million.  $99031 million / 5380 million outstanding shares is approximately $18 per share and a 20% margin of safety is $14/share.

Sources

Morningstar.com

Yahoo! Finance

Cisco.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate anypositions within the next 72 hours.