When Cisco Systems decides to repatriate its overseas cash, it’s going to be big

General Electric Co., eBay Inc. and others have decided to pay the hefty tax bill associated with repatriating massive amounts of cash stranded overseas, but Cisco Systems Inc. doesn’t look ready to follow just yet.

The Internet networking giant has US$50 billion in cash outside of the U.S., equivalent to about 35 per cent of its market cap. Despite this hefty sum, it’s taking a more methodical view than some of its peers.

If the current proposal for a 14-per-cent tax rate is ratified, Cisco said it will bring all of its cash back. However, more legislative adjustments are expected, so the company anticipates tax-code changes in 2017, with related benefits coming the following year.

“Right now repatriating at the 35% rate (30% with overseas credits) doesn’t make sense for Cisco,” said Mark Sue, a New York-based analyst with RBC Capital Markets.

He noted that repatriating at the proposed 14-per-cent tax rate would correspond with US$7 billion in tax and total cash of US$47.1 billion subsequently available onshore.

Assuming Cisco puts aside US$5 billion to run its business and the rest goes to deploying a massive accelerated share buyback program, Sue thinks the company’s 2016 EPS could climb to US$3.40 from a current forecast of US$2.46.

If Cisco opts to use only half of its available cash post-repatriation for share repurchases, 2016 EPS would still climb to an estimated US$2.85. The analyst noted that implies a stock price of US$37, representing upside of more than 25 per cent.

“Cisco’s a cash machine and while we’re not likely to see a massive ASR anytime soon, our meeting (with Treasurer Roger Biscay) gave us increased comfort on the steady cash returns,” Sue told clients.