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Cisco Valuation

CSCO
3/13/2016 Current share price: $27.86

Cisco designs and sells IP based networking and additional products in the field of communications and the information technology industry.  Cisco also provides services related to the use of these products. Cisco operates in North and South America, Europe, and Africa, and Asia.

Valuation 
Analyst
The Analyst target can be used to provide sanity checking of other Valuation techniques.  Targets are often updated too late to be useful, but are usually not completely out to lunch.  In other words, if the Analyst target is significantly different then other valuation techniques the other techniques should be scrubbed for faulty data or recent changes in the company.  The analyst target for Cisco is 4% above the current price.  This suggests the market is appropriately pricing the security.  



Graham Value
CSCO shares are valued using 4 variations of Graham valuation that use different time tables for calculating EPS and EPS growth.  All Graham valuations show the current shares to be within 5% of its value.  Leverage has remained insubstantial over this time. 




Relative Value
For stocks with a long relatively stable history they can be valued against multiples that traded at in the past.  Based on historic multiples CSCO is trading at a slight discount to its value. Key ratios range from -8% to 21% undervalued.



Intrinsic Value
Intrinsic valuations include discounted cash flow (DCF), dividend discount Model (DDM), and Earnings Power Value (EPV).  The DCF model values the CSCO at $23.56, suggesting it is moderately overvalued.  EPV values CSCO at $30.31 implying a small margin of safety at the current share price.  The dividend growth model values the CSCO at $34.23.  This number is inflated by recent dividend growth at an unsustainable rate.  The Payout Ratio has climbed significantly over the time frame input into the model.  Correcting the DDM model for slowing growth as payout ratio approaches a desired level will result in a reduced DDM valuation.



Technical Indicators
Simple Moving Average
CSCO’s current price is above its 13 day simple Moving Average and the moving average is rising.  Both are signs of a bullish trend.
MACD
The MACD presents strong bullish indicators for two reasons. The MACD is above the 9-day moving average and the MACD is above 0.
On Balance Volume
The OBV indicator shows that a long tern sell-off has transitioned into short term buying.

Conclusion
Cisco is currently appropriately valued based on most simple models.  The agreement between the models and the Analyst valuation confirms that the stock currently trades in the appropriate range.  This stock fails the initial value screening process as the downside potential matches the upside potential.   Cisco is a good candidate to maintain on a watch list or to do preemptive in-depth research as it doesn't have to fall far to represent value.  If it stumbles again and retests its 52 week low it will pass the initial value screen.

Technical indicators show that since hitting its 52 week low the stock has been in a bullish trend  The stock could be traded based upon current bullish moment and an intrinsic value approximately equal to the current share price.  

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

This website expresses my own opinion.   I am not a financial advisor.  All opinions, research, analyses, and other information provided on this website are provided as general market commentary and do not constitute investment advice.


This post first appeared on Simple Stock Valuation, please read the originial post: here

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Cisco Valuation

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