Forest River CEO on the floor with Warren Buffett and Greg Abel at Berkshire's annual meeting
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an hour 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
an hour ago
- Yahoo
Warren Buffett may be cashing in stocks ahead of a storm, and could buy them back after it hits, top strategist says
Warren Buffett may be selling stocks because he expects a slump, Wedbush's top strategist said. Paul Dietrich said Buffett has a track record of doing that before a bear market or recession. Buffett could buy back Apple and other stocks if prices plunge, Dietrich told BI. Warren Buffett may be cashing in stocks because he sees a storm on the horizon — and could buy them back once prices tumble, a senior market strategist says. The "Oracle of Omaha" has a "history of selling out of the stock market" when economic and financial indicators are "signaling a bear market or a recession is coming," Wedbush's chief investment strategist, Paul Dietrich, told Business Insider. Buffett's Berkshire Hathaway has been a net seller of stocks for 11 straight quarters, even though the market has "soared" to new highs in that period, Dietrich added. The investor's conglomerate offloaded $212 billion of shares while only buying $34.5 billion, meaning its net disposals exceeded $177 billion — more than the market value of BlackRock or Boeing. Buffett also halted stock buybacks for the last four quarters as he no longer saw Berkshire stock as cheap, Dietrich said. The pause marks a big change from Berkshire's peak repurchases of over $20 billion in both 2020 and 2021. Berkshire's share sales and lack of buybacks have contributed to its cash pile, which more than tripled to a record $344 billion over the three years to June 30. Warren Buffett built up cash before the 2008 financial crisis and the dot-com crash Buffett has jettisoned stocks and gone to cash ahead of past downturns, Dietrich said. Berkshire grew its cash pile from around $11 billion in 1997 to $35 billion in 1998, and ramped up its net stock sales from $700 million in 1999 to $2.7 billion in 2000, ahead of the dot-com crash. The corporate titan had grown its cash pile to more than $70 billion when the financial crisis struck. It fell to about $52 billion by the end of 2008 as Buffett made a series of lucrative deals during the disaster. Berkshire ramped up its net stock purchases from around $5 billion in 2006 to $11 billion in 2007 as it capitalized on depressed asset prices. Buffett sounded cautious about the market during Berkshire's annual meeting in May, Dietrich said. Before his shock announcement that he intended to step down as CEO at the end of this year, Buffett bemoaned the lack of potential bargains as asset valuations continued to rise. Dietrich said the "Buffett Indicator" may be alarming the Berkshire CEO. The gauge, which compares the US stock market's value to the US economy's size, has surged to historic highs of above 210%, he said. That means the combined market capitalization of all actively traded US stocks is more than double the latest quarterly estimate of US GDP. Buffett once wrote that buying stocks at readings approaching 200% would be "playing with fire." The Wall Street veteran recalled Buffett's famous advice to "be fearful when others are greedy, and be greedy when others are fearful," saying the Berkshire chief is preparing to pounce once valuations fall to attractive levels. Dietrich said Buffett would use his cash pile "to eventually buy back Apple and the other shares he has sold — but at a major discount —after the current nose-bleed stock market highs eventually come back down to earth." Berkshire Hathaway didn't immediately respond to a request for comment from Business Insider. Read the original article on Business Insider Sign in to access your portfolio
Yahoo
2 hours ago
- Yahoo
Stryker Stock: Is Wall Street Bullish or Bearish?
With a market cap of $145.9 billion, Stryker Corporation (SYK) is a global leader in medical technology. The company operates through its Orthopaedics and MedSurg & Neurotechnology segments, offering innovative products ranging from joint replacement implants to advanced surgical, neurovascular, and patient care solutions across more than 75 countries. Shares of the Portage, Michigan-based company have underperformed the broader market over the past 52 weeks. SYK stock has increased 13.3% over this time frame, while the broader S&P 500 Index ($SPX) has gained 14.5%. Moreover, shares of the company have risen 7.3% on a YTD basis, compared to SPX's 9.2% return. More News from Barchart Trade the Warren Buffett Rally in UnitedHealth Stock With This High-Reward, Low-Risk Options Strategy Apple Expects $1.1 Billion Tariff Hit in 4th Quarter After $800 Million Q3 Hit; CEO Tim Cook Warns 'Many Factors That Could Change' Cathie Wood Is Buying BLSH Stock After the Bullish IPO. Should You? Markets move fast. Keep up by reading our FREE midday Barchart Brief newsletter for exclusive charts, analysis, and headlines. Looking closer, Stryker stock has outpaced the Health Care Select Sector SPDR Fund's (XLV) 11.2% decrease over the past 52 weeks. Despite Stryker beating expectations with Q2 2025 adjusted EPS of $3.13 and revenue of $6.02 billion on Jul. 31, shares fell 3.8% the next day as investors focused on weaker-than-expected Orthopedics sales of $2.3 billion, weighed down by a 97.2% decline in spinal implants. For the fiscal year ending in December 2025, analysts expect SYK's adjusted EPS to grow 10.8% year-over-year to $13.50. The company's earnings surprise history is promising. It topped the consensus estimates in the last four quarters. Among the 29 analysts covering the stock, the consensus rating is a 'Moderate Buy.' That's based on 19 'Strong Buy' ratings, two 'Moderate Buys,' and eight 'Holds.' On Aug. 1, UBS raised its price target on Stryker to $438 while maintaining a 'Neutral' rating. As of writing, the stock is trading below the mean price target of $437.77. The Street-high price target of $465 implies a modest potential upside of 20.4% from the current price levels. On the date of publication, Sohini Mondal 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
