Bloomberg Daybreak Weekend: US Eco, Cisco Earnings preview
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Yahoo
8 hours ago
- Yahoo
Cisco's Strong Free Cash Flow Could Make CSCO Stock Worth 14% More
Cisco Systems, Inc. (CSCO) delivered strong free cash flow, despite significantly higher capex spending in its fiscal year ending July 31. That could propel CSCO stock at least 14% higher over the next 12 months using its average FCF margins. CSCO is at $66.50 in morning trading on Monday, Aug. 18. That's down from its price on Aug. 13 of $70.40 just before the release of its latest results. More News from Barchart Trade the Warren Buffett Rally in UnitedHealth Stock With This High-Reward, Low-Risk Options Strategy Lyft Generates Huge FCF Margins - LYFT Stock Is Too Cheap Hedge Your Bets With This SPY Options Strategy While the VIX is Still Low Our exclusive Barchart Brief newsletter is your FREE midday guide to what's moving stocks, sectors, and investor sentiment - delivered right when you need the info most. Subscribe today! But it could be worth $75.75 per share using its historical FCF margins and revenue forecasts. Moreover, the average analyst price target is close to this. This article will delve into these points and explore a strategy for playing short out-of-the-money (OTM) puts. Strong Results for FY 2025 Cisco is one of the beneficiaries of the huge artificial intelligence (AI) spending boom. It provides networking equipment, cloud software, and security solutions used by data centers and companies involved in AI-related activities. As a result, its Q4 revenue rose 8% year-over-year (Y/Y) to $14.3 billion, and its fiscal year (ending July 31) sales were up 5% to $56.7 billion. However, its AI infrastructure division took in over $2 billion in orders in FY 25, higher than its goal of $1 billion. That included over $800 million in orders in Q4 alone. This is a strong growth driver for the company going forward. Moreover, Cisco reported that its operating cash flow was very strong and its free cash flow (FCF) - i.e., OCF less capex spending - was also high. For example, in the latest fiscal Q4 ending July 31, the company generated $4.234 billion in OCF, representing 28.9% of its $14.67 billion Q4 revenue. That was +13.5% higher than last year, and the prior OCF margin was lower at 27.3%. Moreover, even with +9.5% higher capex spending in Q4, its FCF margins improved as well. For example, Cisco generated $4.017 billion in FCF, which was 27.4% of revenue. That was higher than the 25.89% FCF margin last year. Moreover, it beat the $13.288 FCF for the year was just 23.4% of its full-year revenue of $56.7 billion. This implies that Cisco's FCF margins will rise over the next year with higher sales. Forecasting FCF For example, analysts are now projecting about $60 billion in sales for the next fiscal year ending July 2026. That is also the upper end of management's guidance for FY 26. As a result, if we assume the company can generate at least 25% FCF margins (higher than the 23.4% in FY 25, but lower than the 27.4% Q4 margin), its FCF could be: $60b x 0.25 FCF margin= $15 billion FCF target That would be an increase of 12.9% over last year's $13.288 billion in FCF. Moreover, it could push up the value of CSCO stock at least that amount. Target Prices for CSCO Stock Last year, the company paid out $12.4 billion in dividends and buybacks to shareholders. That represented 93.3% of its $13.3 billion in FCF. As CSCO's market cap is $262.726 billion today, according to Yahoo! Finance, that means its historical FCF yield is about 5%: $13.288 b FCF FY 25/$262.725 = 0.05058 = 5.06% FCF yield So, using a similar 5.0% FCF yield and applying this to our forecast of $15 billion: $15b FY 26 FCF / 0.05 = $300 billion market cap In other words, if the market gives the stock a 5% FCF yield in the future, and if Cisco generates $15 billion in FCF, its market cap will rise 14.2% to $300 billion. That means its stock price will be worth 14% more, or $1.14 x $66.50 = $75.81 per share target price This is about the same as the average of 26 analysts surveyed by Yahoo! Finance ($75.58 per share). Similarly, Barchart's mean survey price is $75.06, and Stock Analysis says 18 analysts have an average price target of $74.94. Moreover, which tracks recent analyst recommendations, writes that 21 analysts have an average of $77.17 per share as their price targets. The bottom line is that CSCO stock looks undervalued here. One way to play this, setting a lower buy-in price, is to sell short out-of-the-money (OTM) put options in nearby expiry periods. Shorting OTM Puts For example, look at the Sept. 19 expiry period, one month away. It shows that the $64.00 strike price put option contract has a midpoint premium of 62 cents. That represents an immediate short-put yield of about 1% (i.e., $0.62/$64.00 = 0.96875%) for a strike price that is about 3.5% below today's trading price. The point is that an investor who does this play can set a potential lower buy-in point and get paid while waiting. Moreover, even if CSCO falls to $64.00, the investor's breakeven point is $63.38 per share ($64-$0.62), which is 4.7% below today's price. So, the investor potentially gets to buy in at a significantly lower price using this play. However, it could still result in an unrealized capital loss, if CSCO stays below the $63.38 breakeven. Investors should study the risks here. One way to do that is to research Barchart's Options Education Center and the Profit and Loss charts on any options contract. The bottom line is that CSCO stock is cheap here, and OTM selling short OTM puts is one way to play short puts. On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
14 hours ago
- Yahoo
Cisco (CSCO) Price Target Lowered to $64 Despite Strong AI Narrative
Cisco Systems, Inc. (NASDAQ:CSCO) is one of the On August 14, Piper Sandler analyst James Fish lowered the price target on the stock to $64.00 (from $70.00) while maintaining a Neutral rating. Fish noted how Cisco's quarterly results were roughly in-line, and that FY26 guide came in below what bulls were hoping for. This is raising questions about 'peak growth x peak multiple' being already seen, with second half of 2026 guide implying less than 5%. Stock market data on a laptop screen. Photo by Alesia Kozik on Pexels However, the firm believes that the narrative for Cisco remains unscathed owing to artificial intelligence. 'However, the narrative here remains unscathed, as Cisco will see the ~$1B AI orders in F2H25 flow into FY26 revenue, further AI-infrastructure spend (including across customer-bases), campus refresh, datacenter refresh & modernization, growing Enterprise & Neoclouds traction, and Splunk cross-sell and cost-synergies. FY26 guide looks about how we anticipated and realistic, particularly for an incoming CFO. The debate from here will be sustainability, and while we remain optimistic around the narrative across multiple fronts, even an upside numbers scenario is already embedded in the stock at these levels. Reit. Neutral, PT to $70.' While we acknowledge the potential of CSCO as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. READ NEXT: and Disclosure: None. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNBC
18 hours ago
- CNBC
We're buying the excessive dip since last week's earnings in our newest stock
We're buying 200 shares of Cisco Systems at roughly $67. Following Tuesday's trade, Jim Cramer's Charitable Trust will own 1,200 shares of CSCO, increasing its weighting to about 2.2% from about 1.8%. Cisco stock, a Dow 30 name, has dropped around 5% since last Wednesday's strong earnings report and upbeat guidance, but we see this pullback as an overreaction and an opportunity to bulk up our position. Sure, the quarter was not clean, and we've aired some grievances about the large security revenue miss. But CEO Chuck Robbins did a great job explaining how the weakness came mostly from the U.S. federal government, which has experienced severe budget cuts. The rest of world security orders increased by double digits. Also, about two-thirds of Cisco's security portfolio grew above 20%, giving management confidence in its ability to deliver its long-term target of 15% to 17% growth from its Security and Observability segment. CSCO YTD mountain Cisco Systems YTD More importantly, Cisco's AI infrastructure has a lot of momentum, and it should carry on for the next few years as AI investment continues at a strong pace. The company brought in more than $800 million worth of AI infrastructure orders from webscale customers — also known as hyperscale, the big household techs names — bringing the fiscal year 2025 total to over $2 billion. Beyond webscale customers, there should be significant opportunities from neocloud providers — CoreWeave is an example — enterprise AI, and sovereign AI, which refers to nations building out their artificial intelligence capabilities. (Jim Cramer's Charitable Trust is long CSCO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
