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Cisco Systems, Inc. (CSCO - Analyst Report) reported record revenue and earnings per share for the second quarter of its fiscal 2012. This prompted analysts to revise their estimates higher going forward, sending the stock to a Zacks #2 Rank (Buy).

This tech giant is a cash generating machine and has been using that dough to buyback shares and pay a dividend that yields 1.6%.

Valuation looks attractive too with shares trading at just 12x forward earnings and 11x free cash flow.

Company Description

Cisco is the worldwide leader in data networking equipment and software. It was founded in 1984 and is headquartered in San Jose, California.

It has a market cap of $112 billion.

Second Quarter Results

Cisco delivered record earnings per share of 43 cents for the second quarter of its fiscal 2012. This beat the Zacks Consensus Estimate of 38 cents and was a 27% increase over the same quarter in 2011.

Net sales rose 11% to a record $11.527 billion, well ahead of the Zacks Consensus Estimate of $11.231 billion.

And cash flow from operations increased 19% to a whopping $3.1 billion for the quarter.

Estimates Rising

Analysts revised their estimates higher for both 2012 and 2013 following solid Q2 results. This sent the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $1.63, representing 17% growth over 2011 EPS. The 2013 consensus estimate is currently $1.76, corresponding with 8% growth.

As you can see in the company's Price & Consensus chart, estimates have been steadily rising over the last several months:

CSCO: Cisco Systems, Inc.

Returning Value to Shareholders

Cisco generates strong free cash flow and had cash, cash equivalents and investments of $46.7 billion at the end of the second quarter of fiscal 2012.

It has been utilizing its strong cash position to return value to shareholders through stock buybacks and dividend hikes. During the second quarter, it spent $466 million buying back 26 million shares of its stock.

And it also announced on February 7 a 33% increase in its quarterly dividend to 8 cents per share. It currently yields 1.6%. Expect additional large dividend hikes in the future.

Valuation

Valuation looks very reasonable for CSCO with shares trading at just 12x 12-month forward earnings, a discount to the industry median of 13x and its 10-year median of 18x.

Its price to free cash flow ratio of 11 is also well below the peer group multiple of 17 and its 10-year median of 18.

The Bottom Line

With exceptionally strong free cash flow, solid growth projections, rising earnings estimates, shareholder-friendly management, a 1.6% yield and reasonable valuation, Cisco offers investors a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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