cisco systems (CSCO) reported positive free cash flow (FCF) for the latest quarter ending January 24, 2026, although lower than last year. However, its FCF margin remains strong and despite higher capex, management guidance was targeting higher profits.
As a result, analysts have higher price targets for CSCO stock. For example, Yahoo! Finance now reports that the average price target of 26 analysts is $87.86. That’s 14% higher than the current price.
CSCO is listed on $76.87below the recent high of $86.78 reached on February 9, just before the February 11 earnings release.
CSCO Stock – Last 3 Quarters – Bar Chart
Based on its strong FCF and FCF margins, despite higher AI-related investments and capital expenditures (capex), Cisco Systems stock has good upside. This article will show why and a conservative way to play CSCO.
Cisco reported that its fiscal second quarter revenue (ending January 24, 2026) rose 10.3% to $15.3 billion, and earnings per share (EPS) rose faster, at +11%.
However, its operating cash flow (OCF), which includes all cash flow before capital expenditures (capex), fell from $2.24 billion last year to $1.82 billion.
However, that still represented 11.8% of its quarterly revenue, although lower than last year’s 16 OCF margin and 21% in the previous quarter. This can be seen on page 17 of his slideshow:
Cisco Systems Fiscal 2nd Quarter Operating Cash Flow (OCF) and OCF Margins – Page 17 of Hake Slides and Analysis
However, after higher capital spending, its second-quarter FCF was $1.539 billion (10.0% of revenue) compared to $2.03 billion last year (14.5% FCF margin), according to Stock Analysis.
Additionally, over the trailing 12 months (TTM), its FCF remained strong ($12.24 billion), representing 20.73% of TTM income. This was down from the previous year’s FCF margin of 23.6%.
As a result, based on management’s higher revenue forecasts for this year, we can expect FCF to be higher over the next 12 months (NTM).
For example, management said it expects revenue this year to be between $61.2 billion and $61.7 billion (see page 4 of its earnings release). The midpoint of $61.45 billion is 8.5% higher than last year’s revenue of $56.65 billion.
In fact, analysts’ forecasts are higher. Seeking Alpha shows 19 analysts projecting $61.56 billion for the year ending July 2026, and $64.93 billion for the next fiscal year. That implies that over the next 12 months (NTM) revenue could increase by $63.245 billionan increase of 11.64% over fiscal year 2025.
As a result, if we assume that Cisco Systems could maintain around 21% FCF margin (slightly higher than its TTM margin of 20.73%), FCF could rise to almost $13.3 billion:
63,245 million dollars of revenue per NTM x 0.21 = $13.28 billion MNA FCF
This would be more than $1 billion more than its LTM FCF of $12.24 billion, or +8.5%.
As a result, the value of CSCO over the next 12 months (NTM) could be higher. Here’s why.
Right now, Cisco stock has a market capitalization of $302.456 billion, according to Yahoo! Finance. As a result, its trailing 12-month (TTM) FCF return is just over 4%:
That’s $30 billion more than the current market cap or about 10% more.
In other words, even before share buybacks, which have been strong at Cisco, its price target (PT) is 10% higher:
$76.87 x 1.10 = $84.56 PT (i.e. +10%)
That’s even lower than Yahoo! The Finance survey PT of $87.86 and the Barchart survey average PT of $87.15 per share. Additionally, 18 analysts surveyed by AnaChart.com, which tracks recent analyst reviews, show an average PT of $98.23. These surveys average $91.06or +18.5% more.
The bottom line is that CSCO stock could be worth 10% to 18.5% more than the current price.
One way to play this conservatively is to sell short out-of-the-money (OTM) puts on one-month expiry periods. That way, an investor can get paid while also setting a lower potential buy point.
For example, look at the expiration period of March 20, 2026. It shows that the strike price of $72.50, more than 5% lower than the current price, has a midpoint premium of $0.87 per put contract.
CSCO Puts Expiring March 20, 2026 – Bar Chart – As of February 13, 2026
That means a short seller can make $87 immediately after locking in $7,250 with their brokerage firm and placing a “Sell to Open” trade order for this contract.
This represents a one-month performance of 1.20% (i.e. $87/$7,250). The worst that can happen is that CSCO falls to $72.50 or less and the collateral is used to buy 100 shares at that price.
This could result in an unrealized capital loss. But the breakeven point is $71.63 (i.e. $72.50-$0.87), which is 6.8% lower than the current price. Therefore, it provides a good potential entry point.
Additionally, less risk-averse investors could use the premium to help purchase longer-term CSCO in-the-money (ITM) call options. That way, they can get an edge on CSCO stock that is potentially greater than buying CSCO stock. I have talked about this in other articles.
The bottom line is that Cisco Systems stock looks cheap here, and shorting OTM and buying ITM calls are conservative ways to play CSCO.
On the date of publication, Mark R. Hake, CFA had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
