By Richard Saintvilus

Placing a fair valuation on networking giant Cisco (CSCO) has never been an easy task.

Even harder is trying to convince investors to be a bit more patient in expecting the sort of returns the company once produced, helping it to become at one time one of the largest companies in the world.

Those tech-bubble days are over. While expectations have leveled off a bit for the entire sector, in Cisco's case it's at the point where too little is now expected and investors are ignoring the good that still remains.

The fact of the matter is, in the all-important routing and switching businesses where it competes with Hewlett-Packard (HPQ), F5 (FFIV) and Juniper (JNPR), Cisco still owns over 50% and 60% share, respectively, in those markets.

As noted, those business are no longer growing at the rates they once did. But with their strong recurring revenue they remain areas of Cisco's business poised to surge due to expected demand for data. Cisco is banking on a recent study that suggests bandwidth for increased data will soon come at a premium. There will be no other company better positioned to capitalize on that growth.

What's more, the company is now so certain of its future and its ability to compete effectively that it has decided to return value to shareholders by increasing its dividend by 75%.

The new quarterly dividend of 14 cents per share now represents an annual yield of 3.2% of the company's current stock price -- offering yet another reason to be bullish on the company.

In its most recent fiscal fourth quarter, Cisco earned $1.9 billion, or 36 cents per share, compared to the same period of a year ago when it earned $1.2 billion, or 22 cents per share. Excluding costs and special items, earnings arrived at 47 cents, or 2 cents higher than consensus. Analysts were expecting net income of 45 cents per share on revenue of $11.62 billion, an increase from the 35 cents earned the previous year.

The company reported revenue of $11.7 billion, beating analysts' estimates while topping last year's mark of $11.2 billion. The better-than-expected​ results were largely attributable to growth in North America -- in particular the U.S. as sales grew 7%. For the full fiscal year, the company earned $8.04 billion, or $1.49 per share, representing an increase of 24% from $6.49 billion, or $1.17 per share, in fiscal 2011, while revenue arrived at $46.1 billion, up 7% from $43.2 billion in the previous year.

Also, unlike its third-quarter report when it disappointed investors with its guidance, Cisco said for the current quarter it expects earnings per share of 45 cents to 47 cents on revenue in the range of $11.5 billion to $11.9 billion, in line with analysts' EPS forecasts of 46 cents and revenue of $11.7 billion.

Although these figures are moderately better than its previous quarter, its year-over-year forecast is still somewhat cautious and suggesting 2%-4% growth, supporting the Europe-sensitive outlook that names such as Riverbed (RVBD) and Brocade (BRCD) provided in their reports.

Besides the dividend announcement in its earnings report and its overall attitude towards capital redistribution, the company also said it is striving to return to shareholders a minimum of 50% of its annual free cash flow. This is on top of having increased its dividend by 75% and placing its now 3% yield in the upper echelon of tech issuers.

So the question is, where is the risk in owning the shares at this point? It's hard to find any, particularly considering the company has over $30 billion in net cash and that figure is poised to grow commensurate to its revenue.

For this reason, the stock has a great chance of trading at $25 over the course of the next six to 12 months despite the fact that it currently trades with minimal expectations.

Even on the most conservative assumptions the stock would be fairly valued at $28 when factoring its cash on the balance sheet with 4% free-cash flow growth annually. Investors would be wise to add Cisco as it just might become the most undervalued stock on the market.

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