Software Stocks

Cisco Systems Inc Valuation – February 2018 $CSCO

Company Profile (obtained from Marketwatch): Cisco Systems, Inc. designs, manufactures and sells Internet Protocol based networking products and services related to the communications and information technology industry. Its product offerings comprises of the following categories: Switches, Routers, Wireless, Network Management Interfaces and Modules, Optical Networking, Access Points, Outdoor and Industrial Access Points, Next-Generation Firewalls, Advanced Malware Protection, VPN Security Clients, Email and Web Security. The company was founded by Sandra Lerner and Leonard Bosack on December 10, 1984 and is headquartered in San Jose, CA.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CSCO – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $217,519,338,608 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.43 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 84.23% Pass
6. Moderate PEmg Ratio PEmg < 20 20.91 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.17 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.43 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.51 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.10
MG Growth Estimate 5.56%
MG Value $41.30
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $30.52
MG Value based on 0% Growth $17.89
Market Implied Growth Rate 6.20%
Current Price $44.00
% of Intrinsic Value 106.53%

Cisco Systems, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.54 in 2014 to an estimated $2.1 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 6.2% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cisco Systems, Inc. revealed the company was trading above its Graham Number of $27.49. The company pays a dividend of $1.1 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.91, which was below the industry average of 38.79, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.32.

Cisco Systems, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.32
Graham Number $27.49
PEmg 20.91
Current Ratio 2.43
PB Ratio 4.17
Current Dividend $1.10
Dividend Yield 2.50%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $86,050,000,000
Total Current Liabilities $35,364,000,000
Long-Term Debt $25,625,000,000
Total Assets $131,510,000,000
Intangible Assets $32,865,000,000
Total Liabilities $79,528,000,000
Shares Outstanding (Diluted Average) 4,924,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.53
Jul2017 $1.90
Jul2016 $2.11
Jul2015 $1.75
Jul2014 $1.49
Jul2013 $1.86
Jul2012 $1.49
Jul2011 $1.17
Jul2010 $1.33
Jul2009 $1.05
Jul2008 $1.31
Jul2007 $1.17
Jul2006 $0.89
Jul2005 $0.87
Jul2004 $0.62
Jul2003 $0.50
Jul2002 $0.25
Jul2001 -$0.14
Jul2000 $0.36
Jul1999 $0.29
Jul1998 $0.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.10
Jul2017 $1.87
Jul2016 $1.82
Jul2015 $1.63
Jul2014 $1.54
Jul2013 $1.50
Jul2012 $1.30
Jul2011 $1.21
Jul2010 $1.20
Jul2009 $1.11
Jul2008 $1.08
Jul2007 $0.92
Jul2006 $0.74
Jul2005 $0.58
Jul2004 $0.40
Jul2003 $0.27
Jul2002 $0.17

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – February 2016
26 Best Stocks For Value Investors This Week – 2/6/16
Cisco Systems Inc Valuation – February 2016 $CSCO
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – December 2015

Other ModernGraham posts about related companies

Symantec Corp Valuation – August 2017 $SYMC
Intuit Inc Valuation – March 2017 $INTU
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Adobe Systems Inc Valuation – February 2017 $ADBE
Synopsys Inc Valuation – Initial Coverage $SNPS
Microsoft Corporation Valuation – February 2017 $MSFT
Cisco Systems Inc Valuation – January 2017 $CSCO
Autodesk Inc Valuation – December 2016 $ADSK

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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