Cisco Systems Inc Overvalued by Up to 203%: GuruFocus DCF Analysis

Cisco Systems Inc (CSCO) has seen significant price growth over the past year, but according to GuruFocus's DCF analysis, its current price may be overstated. The earnings-based intrinsic value of CSCO is estimated at $49.21, while the free cash flow (FCF)-based intrinsic value is $36.96. This indicates that CSCO is overvalued by a margin of safety of -127.9% and -203.4%, respectively.

The DCF earnings-based model uses a two-stage approach to estimate CSCO's intrinsic value, accounting for growth phases and terminal growth rates. The 10-year Treasury rate of 4.96% is used as the discount rate, along with an equity risk premium of 6%. The calculation shows that CSCO's EPS will grow at a rate of 5.7% annually for the first 10 years, followed by a terminal growth rate of 4%.

The GF Value™ for CSCO is calculated at $74.40, providing a third perspective on its valuation. However, all three models, DCF earnings, FCF, and GF Value™, indicate that CSCO is overvalued at its current price of $112.13. The company's GF Score™ of 85/100 reflects a strong position, but the predictability rank of 3/5 stars suggests that investors should be cautious when interpreting the results.