Cisco Systems, Inc.CSCONASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $102.75 per share(market-calibrated)

+30.1%

Upside to Fair Value

Current

$78.96

Pure Model

$105.28

Fair Value

$102.75

Bull Case

$134.95

Bear Case

$81.40

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

2.47%

Calibrated Growth

3.43%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $105.28.

What's Driving This Ratingfor CSCO

✓

CapEx already efficient

CapEx at 1.27% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 26.12% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 8.65% revenue growth, fading to 3.75% by Year 10. Revenue reaches $88.6B (vs $56.7B today).

🎯

Market pricing in lower growth than model

The market implies only 2.47% perpetual growth — 128bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 87.52% indicates efficient cash generation. FCF reaches $23.2B by Year 10 (26.21% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.86

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.39%

Cost of Debt

Pre-tax Cost of Debt2.72%

Tax Rate8.29%

After-tax Cost of Debt2.49%

Equity Weight (E/V)91.79%

Debt Weight (D/V)8.21%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (91.79% × 8.39%) + (8.21% × 2.49%)

= 7.91%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$61.6B	$68.2B	$73.7B	$79.4B	$88.6B
EBIT	$16.1B	$17.8B	$19.3B	$20.7B	$23.2B
Tax	$1.3B	$1.5B	$1.6B	$1.7B	$1.9B
NOPAT	$14.7B	$16.3B	$17.7B	$19.0B	$21.2B
+ Depreciation	$2.4B	$2.6B	$2.8B	$3.0B	$3.4B
- Capex	$781M	$865M	$935M	$1.0B	$1.1B
- Δ NWC	$414M	$260M	$225M	$243M	$271M
Free Cash Flow	$15.9B	$17.8B	$19.3B	$20.8B	$23.2B
Discount Factor	0.927	0.796	0.683	0.587	0.467
Present Value	$14.7B	$14.2B	$13.2B	$12.2B	$10.9B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$23.2B

Terminal Growth Rate3.75%

WACC7.91%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$579.9B

PV of Terminal Value$270.9B

Exit Multiple Method

Year 10 EBITDA$26.6B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$743.5B

PV of Terminal Value$347.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$129.2B

PV of Terminal Value$270.9B

Enterprise Value$400.1B

(-) Net Debt$19.7B

Equity Value$380.4B

Shares Outstanding4.0B

Price per Share$95.67

Exit Multiple Method

PV of Projected FCFs$129.2B

PV of Terminal Value$347.3B

Enterprise Value$476.6B

(-) Net Debt$19.7B

Equity Value$456.8B

Shares Outstanding4.0B

Price per Share$114.90

Pure Model Fair Value

$105.28

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
5.91%	$137.14	$147.53	$162.72	$164.38	$157.74
6.91%	$114.14	$119.40	$126.34	$135.88	$149.84
7.91%	$98.42	$101.48	$105.28	$110.13	$116.50
8.91%	$86.63	$88.57	$90.90	$93.72	$97.22
9.91%	$77.28	$78.59	$80.11	$81.90	$84.04

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$81.40

3.1% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.08

Base Case

$105.28

33.3% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 0.86

Bull Case

$134.95

70.9% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.74

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth8.65%

Year 3 Revenue Growth4.72%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin26.12%

Tax Rate8.29%

Historical Capex / Rev1.27%

NWC / Revenue8.46%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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