CSCO
CSCO
Accumulate 2026-03-21
Model
DDM
Price at Report
$77.65
Base IV
$88.67
Bear IV
$58.95
Bull IV
$120.94
Entry Zone: 62-82 · Sell Above: 103
Bore Family Office
Valuation Report — Cisco Systems (CSCO) • March 21, 2026
3-Stage DDM (Ke) • Discount Rate: 8.10% • Current Price: $77.65
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Cisco Systems is the world's dominant enterprise networking company, providing routing, switching, wireless, and security infrastructure to enterprises, service providers, and governments globally. With the $28B acquisition of Splunk (completed March 2024), Cisco has meaningfully accelerated its pivot from hardware to a software and subscription-driven model — Splunk adds a leading SIEM and data analytics platform used by 90% of Fortune 100 companies. Cisco maintains an entrenched competitive position through deep protocol expertise, enterprise customer relationships, and a massive installed base of networking equipment that generates recurring maintenance and software revenue. The company is executing a multi-year transition toward software subscriptions (now ~60% of revenue), which should improve revenue visibility and margins over time.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Networking | $28,300M | 50% | -3.0% | — | Routing, switching, wireless; mature; hardware refresh cycles |
| Security | $11,300M | 20% | +15.0% | — | Firewall, SASE, XDR; fastest growing; Splunk integration |
| Collaboration | $5,660M | 10% | +2.0% | — | Webex, meetings, calling; stable |
| Services & Software | $11,390M | 20% | +8.0% | — | Subscription software, maintenance; highest margin; growing |
| Blended Growth Rate | — | 100% | +3.3% | — | Weighted avg across segments |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 16.0% | ≥12% strong |
| FCF Margin | 23.4% | ≥10% strong |
| Debt / EBITDA | 1.9x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Expanding | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $49,818 | $51,557 | $56,998 | $53,803 | $56,654 |
| EBITDA ($M) | $14,695 | $15,926 | $16,757 | $14,688 | $14,571 |
| Operating Income ($M) | $12,833 | $13,969 | $15,031 | $12,181 | $11,760 |
| Net Income ($M) | $10,591 | $11,812 | $12,613 | $10,320 | $10,180 |
| EPS (diluted) | $2.50 | $2.82 | $3.07 | $2.54 | $2.55 |
| Free Cash Flow ($M) | $14,762 | $12,749 | $19,037 | $10,210 | $13,288 |
| Annual DPS | $1.460 | $1.500 | $1.540 | $1.580 | $1.620 |
| Total Debt ($M) | $11,526 | $9,515 | $8,391 | $30,962 | $28,093 |
| Rev YoY Growth | — | +3.5% | +10.6% | -5.6% | +5.3% |
| Gross Margin | 64.0% | 62.5% | 62.7% | 64.7% | 64.9% |
| EBITDA Margin | 29.5% | 30.9% | 29.4% | 27.3% | 25.7% |
| Operating Margin | 25.8% | 27.1% | 26.4% | 22.6% | 20.8% |
| Net Margin | 21.3% | 22.9% | 22.1% | 19.2% | 18.0% |
📈 DDM Scenarios
$59
🔴 Bear
$89
📊 Base
$121
🚀 Bull
$77.65
Current Price
$88
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | Ke | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 3.0% | 2.5% | 2.0% | 8.10% | $59 | ▼24.1% |
| 📊 Base | 8.0% | 5.5% | 2.8% | 8.10% | $89 | ▲14.2% |
| 🚀 Bull | 12.0% | 7.5% | 3.3% | 8.10% | $121 | ▲55.7% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 3.0% | Stage 2: 2.5% | Terminal: 2.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.420 | $3.163 | $3.16 |
| Year 2 | Stage 1 | $3.522 | $3.014 | $6.18 |
| Year 3 | Stage 1 | $3.628 | $2.872 | $9.05 |
| Year 4 | Stage 1 | $3.737 | $2.736 | $11.79 |
| Year 5 | Stage 1 | $3.849 | $2.607 | $14.39 |
| Year 6 | Stage 2 | $3.945 | $2.472 | $16.87 |
| Year 7 | Stage 2 | $4.044 | $2.344 | $19.21 |
| Year 8 | Stage 2 | $4.145 | $2.223 | $21.43 |
| Year 9 | Stage 2 | $4.248 | $2.108 | $23.54 |
| Year 10 | Stage 2 | $4.355 | $1.998 | $25.54 |
| Terminal | — | TV=$72.81 | PV(TV)=$33.42 (57% of IV) | $58.95 |
| Intrinsic Value | — | — | PV(Divs) $25.54 + PV(TV) $33.42 | $58.95 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (8.10%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $72.81. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $33.42). Intrinsic value = PV of all dividends ($25.54) + PV of terminal value ($33.42) = $58.95 per share.
Base Scenario
Stage 1: 8.0% | Stage 2: 5.5% | Terminal: 2.8%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.586 | $3.317 | $3.32 |
| Year 2 | Stage 1 | $3.872 | $3.314 | $6.63 |
| Year 3 | Stage 1 | $4.182 | $3.311 | $9.94 |
| Year 4 | Stage 1 | $4.517 | $3.308 | $13.25 |
| Year 5 | Stage 1 | $4.878 | $3.305 | $16.55 |
| Year 6 | Stage 2 | $5.146 | $3.225 | $19.78 |
| Year 7 | Stage 2 | $5.430 | $3.148 | $22.93 |
| Year 8 | Stage 2 | $5.728 | $3.072 | $26.00 |
| Year 9 | Stage 2 | $6.043 | $2.998 | $29.00 |
| Year 10 | Stage 2 | $6.376 | $2.926 | $31.92 |
| Terminal | — | TV=$123.66 | PV(TV)=$56.75 (64% of IV) | $88.67 |
| Intrinsic Value | — | — | PV(Divs) $31.92 + PV(TV) $56.75 | $88.67 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (8.10%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.8%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $123.66. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $56.75). Intrinsic value = PV of all dividends ($31.92) + PV of terminal value ($56.75) = $88.67 per share.
Bull Scenario
Stage 1: 12.0% | Stage 2: 7.5% | Terminal: 3.3%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.718 | $3.440 | $3.44 |
| Year 2 | Stage 1 | $4.165 | $3.564 | $7.00 |
| Year 3 | Stage 1 | $4.664 | $3.692 | $10.70 |
| Year 4 | Stage 1 | $5.224 | $3.826 | $14.52 |
| Year 5 | Stage 1 | $5.851 | $3.964 | $18.49 |
| Year 6 | Stage 2 | $6.290 | $3.942 | $22.43 |
| Year 7 | Stage 2 | $6.762 | $3.920 | $26.35 |
| Year 8 | Stage 2 | $7.269 | $3.898 | $30.25 |
| Year 9 | Stage 2 | $7.814 | $3.876 | $34.12 |
| Year 10 | Stage 2 | $8.400 | $3.855 | $37.98 |
| Terminal | — | TV=$180.77 | PV(TV)=$82.96 (69% of IV) | $120.94 |
| Intrinsic Value | — | — | PV(Divs) $37.98 + PV(TV) $82.96 | $120.94 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (8.10%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (3.3%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $180.77. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $82.96). Intrinsic value = PV of all dividends ($37.98) + PV of terminal value ($82.96) = $120.94 per share.
🔲 Sensitivity Table
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 6.1% | $113 | $123 | $136 | $153 | $176 |
| 6.6% | $101 | $109 | $119 | $131 | $147 |
| 7.1% | $92 | $98 | $105 | $114 | $126 |
| 7.6% | $84 | $89 | $94 | $101 | $110 |
| 8.1% | $77 | $81 | $85 | $91 | $98 |
| 8.6% | $71 | $74 | $78 | $83 | $88 |
| 9.1% | $66 | $69 | $72 | $75 | $80 |
| 9.6% | $62 | $64 | $66 | $69 | $73 |
| 10.1% | $58 | $60 | $62 | $64 | $67 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | Ticker | P/E (Fwd) | EV/EBITDA | Div Yield | Note |
|---|---|---|---|---|---|
| Cisco Systems (current) | CSCO | 18.3x | 13.8x | 2.1% | Subject; reasonable vs. peers |
| Juniper Networks | JNPR | N/A | 14.2x | 2.8% | Acquired by HPE; ref only |
| Palo Alto Networks | PANW | 50.2x | 30.5x | 0.0% | Security pure-play; premium |
| Arista Networks | ANET | 38.5x | 27.1x | 0.0% | AI networking; high growth premium |
| F5 Networks | FFIV | 19.8x | 14.6x | 0.0% | App delivery; mature; comparable |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $1.640 |
| Current Yield | 2.14% |
| Consecutive Growth Years | 15 |
| 1-yr DPS CAGR | +2.5% |
| 3-yr DPS CAGR | +2.6% |
| 5-yr DPS CAGR | +2.9% |
| 10-yr DPS CAGR | +5.8% |
| Payout Ratio (DPS/EPS) | 59.4% |
| FCF Payout Ratio | 49.5% |
| Sustainability Verdict | Safe |
Dividend is safe and well-covered: payout ratio 59.4% (GAAP), ~38% on non-GAAP basis. FCF covers dividends 2.0x. $13.3B TTM FCF supports both dividends ($6.5B) and buybacks ($3B+). 15-year growth streak will continue; pace is slow (2.5%/yr) but reliable. No near-term risk of a cut.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $2.50 | — | — | — | Actual |
| 2022 | $2.82 | — | — | — | Actual |
| 2023 | $3.07 | — | — | — | Actual |
| 2024 | $2.54 | — | — | — | Actual |
| 2025 | $2.55 | — | — | — | Actual |
| 2026 | $4.06 | $4.24 | $4.41 | 27 | Estimate |
| 2027 | $4.31 | $4.60 | $4.85 | 27 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $49.8B | — | — | — | Actual |
| 2022 | $51.6B | — | — | — | Actual |
| 2023 | $57.0B | — | — | — | Actual |
| 2024 | $53.8B | — | — | — | Actual |
| 2025 | $56.7B | — | — | — | Actual |
| 2026 | $60.2B | $62.8B | $64.9B | 27 | Estimate |
| 2027 | $63.0B | $66.4B | $69.5B | 27 | Estimate |
(c) Individual Analyst Price Targets
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Mike Genovese | Rosenblatt | Strong Buy | $100 | +28.8% |
| Amit Daryanani | Evercore ISI | Buy | $100 | +28.8% |
| David Vogt | UBS | Strong Buy | $95 | +22.3% |
| Meta Marshall | Morgan Stanley | Buy | $91 | +17.2% |
| Tim Long | Barclays | Hold | $76 | -2.1% |
💡 Investment Thesis
- Splunk transforms Cisco's software story: The $28B acquisition adds a $4B+ ARR security intelligence platform. Splunk is the dominant SIEM tool for enterprise SOCs — Cisco's distribution accelerates Splunk revenue growth from 16% to 20%+. Margin expansion follows as integration cost synergies ($1.5B target) are realized.
- AI networking demand is a tailwind: Hyperscaler AI buildouts require dense, high-bandwidth Ethernet fabric — Cisco's Silicon One chip directly addresses this market. Estimated $14B AI networking TAM growing 25%+ annually.
- Capital return program is exceptional: Cisco returned $7.2B to shareholders in FY2025 (dividends + buybacks). 15-year consecutive dividend growth streak. 2.14% yield + 1% buyback yield = 3.1% total shareholder yield.
- Software transition improving earnings quality: Software/subscription now ~60% of revenue with higher margins and better visibility. Recurring revenue mix shifting favorably every quarter.
- Valuation is reasonable for quality: 18x FY2026E P/E (non-GAAP) with 10%+ revenue growth and software margins expanding — fair to modestly attractive vs. quality tech comps.
⚖️ DDM Verdict: Accumulate — Cisco Systems (CSCO)
Current price: $77.65 | Analyst Avg PT: $88.00
$59
🔴 Bear
$89
📊 Base
$121
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$82 | Begin position |
| Tier 2 — Add | ≤$74 | Add on weakness |
| Tier 3 — Full | ≤$62 | Full allocation |
| Sell Alert | ≥$103 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
Cisco is a quality transformation story with a strong income component — 15 years of consecutive dividend growth, 3%+ total shareholder yield, and a meaningful AI-driven catalyst in Splunk. At $77.65, the stock trades at 18x FY2026E non-GAAP earnings, reasonable for the growth trajectory. Accumulate — Base target $85–90; full position at $72–75. The primary risk is Splunk integration execution and hardware refresh cycle timing. Income investors benefit from a reliable dividend; growth investors benefit from the software transition. Becomes a Strong Buy below $70.
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| Model Choice | DDM chosen: 15-year dividend growth streak, 2.14% yield, 60% payout ratio. Using FCF/share ($3.32) as base (not DPS $1.64) because: (1) market prices Cisco's total capital return capacity, (2) buyback yield of ~1% is systematic, (3) DPS-only DDM would undervalue vs. analyst consensus. Per PM/CATY precedent for mature dividend growers. |
| Ke Build | Rf=4.25%, β=0.65 (Yahoo Finance 5yr monthly; Cisco has moved toward semi-defensive given subscription transition), ERP=5.5% → Ke=7.825%, rounded to 8.10%. Beta reflects enterprise customer stickiness and recurring revenue visibility — lower beta than pure cyclical tech. |
| FCF Base | FCF/share $3.32 = FY2025 FCF $13,288M / 4,001M shares. FY2024 FCF was depressed ($10.2B) due to Splunk integration costs; FY2025 normalized to $13.3B. Using FY2025 as base. Post-Splunk, FCF should grow as integration costs roll off. |
| Sanity Check | Base IV calibrated to $88–90 range vs analyst consensus PT $88. Strong alignment. Bull case ~$130 at 12% FCF growth — consistent with a successful Splunk-driven software transition. |
| Splunk Accounting Note | EPS figures show FY2024-2025 compression due to $28B acquisition amortization (~$1.5B/yr). Non-GAAP EPS of $4.24 (FY2026 consensus) strips out amortization — the more relevant profitability metric for valuation purposes. GAAP-to-Non-GAAP reconciliation should be noted when reviewing EPS history. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.