Cisco Methods (CSCO) reported optimistic free money move (FCF) for the newest quarter ending Jan. 24, 2026, albeit decrease than final yr. However, its FCF margin remains to be sturdy, and regardless of increased capex, administration’s steerage was for increased earnings.
In consequence, analysts have increased goal costs for CSCO inventory. For instance, Yahoo! Finance now stories that the typical of 26 analysts’ worth targets is $87.86. That is 14% increased than in the present day’s worth.
CSCO is buying and selling at $76.87, down from a current peak of $86.78 on Feb. 9, simply earlier than the Feb. 11 earnings launch.
CSCO inventory – final 3 quarters – Barchart
Based mostly on its sturdy FCF and FCF margins, regardless of increased AI-related investments and capital expenditures (capex), Cisco Methods’ inventory has good upside. This text will present why and a conservative approach to play CSCO.
Cisco reported that its fiscal Q2 income (ending Jan. 24, 2026) was up 10.3% to $15.3 billion, and earnings per share (EPS) rose sooner, +11%.
Nonetheless, its working money move (OCF), which incorporates all money move earlier than capital expenditures (capex), was down from $2.24 billion final yr to $1.82 billion.
However, that also represented 11.8% of its quarterly income, albeit decrease than final yr’s 16 OCF margin and 21.% within the prior quarter. This may be seen on web page 17 of its slide deck:
Cisco Methods fiscal Q2 working money move (OCF) and OCF margins – web page 17 of slide deck and Hake evaluation
Nonetheless, after increased capex spending, its Q2 FCF was $1.539 billion (10.0% of income) in comparison with $2.03 billion final yr (14.5% FCF margin), in response to Inventory Evaluation.
Furthermore, over the trailing 12 months (TTM), its FCF was nonetheless sturdy ($12.24 billion), representing 20.73% of TTM income. That was down much less from the prior yr’s 23.6% FCF margin.
In consequence, primarily based on administration’s increased income forecasts for this yr, we are able to count on that FCF might be increased over the subsequent 12 months (NTM).
For instance, administration guided that this yr it expects income to vary between $61.2 billion and $61.7 billion (see web page 4 of its earnings launch). The midpoint of $61.45 billion is 8.5% increased than final yr’s $56.65 billion income.
In reality, analysts’ forecasts are increased. In search of Alpha exhibits that 19 analysts undertaking $61.56 billion for the yr ending July 2026, and $64.93 billion for the next fiscal yr. That means that over the subsequent 12 months (NTM) income might rise to $63.245 billion, up 11.64% over FY 2025.
In consequence, if we assume that Cisco Methods might keep round 21% FCF margin (barely increased than its TTM 20.73% margin), FCF might rise to nearly $13.3 billion:
$63.245 billion NTM income x 0.21 = $13.28 billion NTM FCF
That may be over $1 billion increased than its LTM FCF of $12.24 billion, or +8.5%.
In consequence, CSCO’s worth over the subsequent 12 months (NTM) might be increased. Here is why.
Proper now, Cisco’s inventory has a market capitalization of $302.456 billion, in response to Yahoo! Finance. In consequence, its FCF yield on a trailing 12-month (TTM) foundation is simply over 4%:
$12.24b TTM FCF / $302.456 b mkt cap = 0.0405 = 4.05% FCF yield
Assuming its FCF yield improves to 4.0% over the subsequent 12 months, the market worth might rise to $332 billion:
$13.28 NTM FCF / 0.04 = $332 billion NTM mkt cap
That is $30 billion increased than todays mkt cap or about 10% increased.
In different phrases, even earlier than share buybacks, which have been sturdy at Cisco, its worth goal (PT) is 10% increased:
$76.87 x 1.10 = $84.56 PT (i.e., +10%)
That’s even decrease than Yahoo! Finance’s survey PT of $87.86, and Barchart’s imply survey PT of $87.15 per share. Furthermore, 18 analysts surveyed by AnaChart.com, which tracks current analyst write-ups, present a mean PT of $98.23. These surveys common $91.06, or +18.5% increased.
The underside line is that CSCO inventory might be price between 10% to 18.5% greater than in the present day’s worth.
One approach to conservatively play that is to promote brief out-of-the-money (OTM) put choices in one-month expiration durations. That means, an investor can receives a commission whereas setting a possible decrease buy-in level.
For instance, have a look at the March 20, 2026, expiration interval. It exhibits that the $72.50 strike worth put, over 5% decrease than in the present day’s worth, has a midpoint premium of $0.87 per put contract.
CSCO Places expiring March 20, 2026 – Barchart – As of Feb. 13, 2026
Meaning a short-seller could make $87 instantly after securing $7,250 with their brokerage agency and inserting a “Promote to Open” commerce order for this contract.
That represents a one-month yield of 1.20% (i.e., $87/$7,250). The worst that may occur is CSCO falls to $72.50 or decrease, and the collateral is used to purchase 100 shares at that worth.
This might end in an unrealized capital loss. However the breakeven level is $71.63 (i.e., $72.50-$0.87), which is 6.8% decrease than in the present day’s worth. So, it gives an excellent potential entry level.
Furthermore, much less risk-averse traders might use the premium to assist purchase longer-dated in-the-money (ITM) CSCO name choices. That means, they will acquire upside in CSCO inventory that’s probably better than shopping for CSCO shares. I’ve mentioned this in different articles.
The underside line is that Cisco Methods’ inventory appears low cost right here, and shorting OTM places and shopping for ITM calls are conservative methods to play CSCO.
On the date of publication, Mark R. Hake, CFA didn’t have (both instantly or not directly) positions in any of the securities talked about on this article. All data and knowledge on this article is solely for informational functions. This text was initially printed on Barchart.com
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