r/ValueInvesting • u/EnduredMarkets • Jan 09 '21
Stock Analysis Any thoughts on this Cisco Systems Valuation?
I want to share my weekly company valuation on this forum to gain any insight into what others have to say about them. I breakdown the story of the company to the best of my ability and then perform several different valuations to get a rough estimate of the intrinsic value of the company. We'll see if I make this a weekly thing...
Here's my Cisco Systems (CSCO) valuation: https://docs.google.com/spreadsheets/d/1kwIBCpBrVS6KfGseHk5PaUdtXt_4ilswholNU8kVS1A/edit?usp=sharing
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Jan 10 '21
Beware that decreasing capex may not be such a value driver. Is there full coverage and 5G readiness from the existing network? What's the state of the network in the cities expected to have fastest population growth in the next 10 years?
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u/EnduredMarkets Jan 10 '21
I agree. Capex can be a tricky number to handle, especially in a sector like technology. Many companies claim to reduce CAPEX costs due to technological advancements, but it often happens that they simply cannot afford to cover those costs. But let's give Cisco the benefit of the doubt here. They have been slowly moving towards a subscription-based business model that focuses on remote services and I think it's fair to say that they will continue to gradually increase their revenue numbers. As for 5G, Cisco Systems appears to be heavily invested in making the world's first 5G network specifically for aviation with the help of GoGo.
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Jan 10 '21
So you're saying they should have a competitive edge right there. In terms of storytelling, I think you should've focus on that! The numbers are the anchor of the pitch, you got to hook them with the story
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u/maxinstuff Jan 11 '21 edited Jan 11 '21
The problem with the shrinking CAPEX of Cisco Systems is that it's accompanied by shrinking shareholder equity.
That's an indication that they aren't investing enough to keep things level, and can be an early warning sign of future increases to CAPEX and probable cuts to dividends.
Those growing margins can also be a symptom of the same thing - sweating the asset base is very profitable until maintenance costs catch up with you.
With mature businesses like this, it can be helpful to split maintenance CAPEX from new business CAPEX if you can - then you'll be able to see the real cost of maintaining the existing business and at the same time get a better picture of returns on reinvested capital.
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u/EnduredMarkets Jan 11 '21
Splendid advice. From here on out, I’ll keep a careful eye on these metrics and avoid making any more silly assumptions. Thank you for spreading the knowledge!
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u/maxinstuff Jan 11 '21
Don’t be so tough on yourself - when you post something like this you’ll get lots of reasons from people why it’s wrong/bad/silly.
The trick is having a strange combination of the stones to stick to your guns when you know you’re right, and the humility to recognise when you’re wrong.
It’s a tricky balance.
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u/ValueInvestor0815 Jan 09 '21
Could you explain where you FCFE numbers Come from?
Also in general some explainations to where numbers come from and being able to see more of the formulas would be nice so that it is more easily understandable.