Cisco Systems, Inc. (CSCO) delivered strong free cash flow, despite significantly higher capex spending in its fiscal year ending July 31. That could propel CSCO stock at least 14% higher over the next 12 months using its average FCF margins.
CSCO is at $66.50 in morning trading on Monday, Aug. 18. That’s down from its price on Aug. 13 of $70.40 just before the release of its latest results.
CSCO stock – last 6 months – Barchart – Aug. 18, 2025
But it could be worth $75.75 per share using its historical FCF margins and revenue forecasts. Moreover, the average analyst price target is close to this. This article will delve into these points and explore a strategy for playing short out-of-the-money (OTM) puts.
Cisco is one of the beneficiaries of the huge artificial intelligence (AI) spending boom. It provides networking equipment, cloud software, and security solutions used by data centers and companies involved in AI-related activities.
As a result, its Q4 revenue rose 8% year-over-year (Y/Y) to $14.3 billion, and its fiscal year (ending July 31) sales were up 5% to $56.7 billion.
However, its AI infrastructure division took in over $2 billion in orders in FY 25, higher than its goal of $1 billion. That included over $800 million in orders in Q4 alone.
This is a strong growth driver for the company going forward.
Moreover, Cisco reported that its operating cash flow was very strong and its free cash flow (FCF) – i.e., OCF less capex spending – was also high.
For example, in the latest fiscal Q4 ending July 31, the company generated $4.234 billion in OCF, representing 28.9% of its $14.67 billion Q4 revenue. That was +13.5% higher than last year, and the prior OCF margin was lower at 27.3%.
Moreover, even with +9.5% higher capex spending in Q4, its FCF margins improved as well. For example, Cisco generated $4.017 billion in FCF, which was 27.4% of revenue. That was higher than the 25.89% FCF margin last year. Moreover, it beat the $13.288 FCF for the year was just 23.4% of its full-year revenue of…
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