Read This Before You Buy Cisco: There Are Better Deals in Tech
&Nbsp; ) is in value territory. Its trailing P/E is 12, and its forward P/E stands at just 9. It also continually throws off massive amounts of cash. In the past 12 months, Cisco produced nearly $10.5 billion in operating cash flow against a market cap of just $85 billion. Best of all, the company has a net cash hoard of $28.8 billion, more than a third of its market cap.Or … does it?
Well, here's where we uncover Cisco's parlor trick. Investors love focusing in on the following lines of Cisco's balance sheet:
Source: Capital IQ, a division of Standard & Poor's.
Finance articles of all kinds love to report that after deducting debt from cash, Cisco has nearly one-third of its value in cash. On the surface, that does look like an amazing deal. After considering that Cisco generates free cash flow of $9.25 billion per year and subtracting out cash, it trades for just 6.1 times trailing free cash flow.
However, that cash balance isn't quite what it seems. Cisco holds about 90% of its cash outside the country, and it would be subject to heavy taxation if brought back stateside. During the most recent company conference call, CEO John Chambers said of the company's overseas cash holdings:
Now moving on to our balance sheet, we did close the quarter with a total of cash, cash equivalents, and investments of $43.4 billion. [Figure excludes long-term cash holdings.] That was up $3.1 billion from last quarter, which included net additional borrowings of $1.5 billion, as well as continued strong operating cash flow of $3 billion. Of this balance, $4.6 billion was held within the U.S. at the end of the quarter.This is, I admit, an oversimplified overview, with all cash assumed to be subject to a 35% repatriation tax. Still, you can see that Cisco's total cash after considering taxes hasn't increased substantially over the past half-decade. And its use of increasing debt creates an operating leverage of sorts: The more debt it raises and the more cash comes from overseas, the more deceptive its total cash hoard is. Even if Cisco's total cash amount is soaring, the net cash available to stockholders after considering additional taxes is barely budging.
So much more to buy
In any event, the tech world is rife with crazy cheap values without considering Cisco as an investment. For the following options, I again oversimplified to assume that all cash would be subject to a 35% repatriation tax, and I also eliminated stock-based compensation from cash flows.
Implications Of Cash Flow - News
It also continually throws off massive amounts of cash. In the past 12 months, Cisco produced nearly $10.5 billion in operating cash flow against a market cap of just $85 billion. Best of all, the company has a net cash hoard of $28.8 billion,
Understand and plan your cashflow requirements or you might get bitten! It has been reported recently that half of local authority schemes risk having a cashflow shortfall. However, this is an issue for consideration by most private sector pension
The orchestra's April 16 bankruptcy petition is in part about immediate cash-flow issues, but a central goal is replacing the defined-benefit pension plan for musicians with a defined-contribution plan. Orchestra leaders have said bankruptcy is a tool
We believe that Cardtronics may be able to support a higher corporate credit rating, even with the financing impact of the transaction increasing leverage, because of improved operating trends, solid free cash flow generation, and ample capacity within
Q2 cash flow from operations totaled $47 million despite a $17.5 million negative impact from excess tax benefits from stock-based compensation. This amount is difficult to predict, was almost double what we've seen in the past couple of quarters,
What are the social implications of economic collapse ...
Reporting From: New York City
For the last few days, we’ve been having an important discussion about the magnitude of the economic challenges in the west; if you didn’t read yesterday’s letter, I really encourage you to do so before proceeding because it’s important to understand why the west has truly passed the point of no return.
Simply put, the United States and much of Europe are borrowing an extraordinary amount of money now just to pay interest on the money they’ve already borrowed. They cannot even self-fund their mandatory entitlement programs without going into the hole, and their options are limited:
Option 1: Continue borrowing, keep the party going.
As long as the government CAN do this, they WILL do this. Regardless of their intentions, though, more debt only worsens the situation, creating higher borrowing costs in the long run, and even more debt. As this happens, the pool of buyers begins to dry up, especially from overseas.
Option 2: Inflation
The more buyers stop purchasing Treasury securities, the more the Federal Reserve will mop up the excess liquidity. In doing so, the Fed essentially conjures up money and loans it to the government.
No matter what the government monkey statistics say, this is inflationary, plain and simple. The more money they print, the greater the level of inflation in the long-term. Meanwhile, as foreigners simultaneously reduce their US dollar holdings, this inflation will become more acutely felt in the US.
Option 3: Austerity
There’s going to come a time when the US government is forced to face its economic reality and make some incredibly deep cuts that would be felt across society, from Wall Street and the military industrial complex to project housing on the other side of the tracks.
Option 4: Default
Eventually, the debt burden is simply going to be too much, and the most obvious solution will be to default. Politicians will make China out to be the enemy and they will probably invent a war just to have an excuse to default on Chinese owned debt. Americans will wave the flag and celebrate defaulting on their enemies.
Option 5: Economic Cannibalism
In the best traditions of Atlas Shrugged, the government will continue its persecution of the productive class– professionals, investors, entrepreneurs, and skilled workers. Existing taxes will rise, new taxes will be created, trade barriers will be enacted, and a maze of cost prohibitive regulations will be passed.
Implications Of Cash Flow - Bookshelf
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