A tech value stock??? From Gurufocus.com

CSCO Cisco Systems Ltd

Cisco Systems & Value? Who'd a thunk it? CSCO

by Dr Paul Price Cisco Systems [NDQ:CSCO] Feb. 4, 2008 close: $23.82
52-week range: $22.30 - $34.24

Cisco is the leading supplier of networking products for LANs and WANs. Products include routers, switches and netwotrk management software. Domestic revenues were 52.5% last FY out of total sales of about $35 billion. FY 2008 revenues are expected to hit over $40 billion.

Who would have thought CSCO would turn up as a 'value' stock? Yet with current FY estimated earnings of $1.59 [ends July 2008] and $1.82 forecast for FY 2009, these shares are offered at just 14X calendar year earnings for 2008. CSCO's 10-year median P/E has been 35X but that includes the tech insanity of 1998 - 2000. The lowest average annual P/E since 2002 was 21.3X [in 2006].

Cisco held almost $25 billion in cash as of late October against total debt of just $6.6 billion. It is rated A++ for financial strength by Value Line. Every year since FY 2001 has seen rising sales, cash flow, and EPS.

These shares hit $34.20 as recently as November yet their estimates have been raised since they posted October period earnings of $0.35 v. $0.26 year-over-year. Value Line is assuming a 3 - 5 year P/E mulitple of 23X. Even 20X this year's $1.70 calendar year expectation leads to a target price of $34 or + 42% from today's quote.

Risk? Cisco's earnings predictability is not high. It rates only 40th percentile, making all estimates less than binding. All techology companies have 'leapfrogging' risk should alternate systems be developed that would steal market share. That said, CSCO is the world leader in its field and continues to make complementary acquistions to broaden and refresh their market penetration.

At today's price the risk/reward looks very favorable. The recent pullback has given us a chance to own a world class company at a very ordinary valuation.

How cheap is Cisco right now? At its absolute low [split adjusted] $5 price in 1997 the P/E was 21.8X and the shares were set to surge to $82/share by 2000. At 2002's low price of $8.10 [set in a horrible market environment] their P/E was 20X. Cisco's share price then skyrocketed from $8.10 to $29.40 in about 16 months.

From a 14X forward multiple who knows how high these shares can go in the next year or two?