With the expectation that Cisco will only grow revenue at around 6% next year, Cisco's days of high growth are most likely over. But is this analyst's price target based on reality? Or is it simply a reaction to lackluster stock performance? We'll see in a moment that Cisco is a substantially undervalued stock, and that the apparent uncertainty surrounding the company has opened a window to some very lucrative options trades which could allow you to buy shares of Cisco on the cheap.

How Much Is Cisco Worth?

First, let's take a look at Cisco's balance sheet as of July 2012 (the end of fiscal 2012 for Cisco). There is $48.7 billion in cash on the books compared to $16.3 billion in debt, leaving a net cash balance of $32.4 billion. With a diluted float of 5.4 billion shares this amounts to $6 per share in cash. This means that, currently, the market is valuing Cisco's future earnings at $10.82 per share.

How much are those earnings really worth? Cisco's free cash flow was $10.3 billion in fiscal 2012, or $1.91 per share. This puts the Price/FCF ratio, once cash is backed out, at just 5.7. This means that even if Cisco's free cash flow does not grow at all, ever again, someone purchasing the company as a whole would recoup their entire investment in less than 6 years. For a company with the size and dominance of Cisco, this is astounding.

To estimate the fair value of a share of Cisco I'll use a simple discounted cash flow analysis. I'll assume that Cisco's free cash flow does not grow at all. Here is a table of the results using various discount rates.

Remember that this is assuming zero growth. If we assume just 3% growth, which is basically no growth after inflation, the results are even better.

Assuming abysmal growth going forward I value a share of Cisco at leastsomewhere in the low to mid 20's.