NEW YORK (F.A.S.T. Graphs) -- Cisco (CSCO - Get Report) reported earnings and revenue that slightly exceeded analyst estimates while simultaneously offered guidance which was a little lighter than previous expectations.Nevertheless, the stock is up by double-digits, which hardly seems justified by the news. Therefore, my logical mind tells me that the rise in Cisco's stock price has something other than a mild earnings and revenue beat behind it. Simple fundamental analysis of the company and its current valuation reveal what I believe to be the primary driving force behind today's price increase. Let's start by looking at a F.A.S.T. Graphs, which plots earnings and dividends since calendar year 2003, the past decade. The orange line represents a PE ratio of 19.1, which is equal to the company's operating earnings growth rate. Moreover, it represents the earnings justified valuation based on applying a P/E ratio that is equal to the company's growth rate. The light blue shaded area shows dividends, which Cisco has been paying since 2011. Although there is some cyclicality in this record, long-term average defined Cisco as a growth stock.
However, the important takeaway is the market is applying an unjustifiably low valuation on Cisco shares. Consequently, I believe there was pent-up performance in the stock that the market is beginning to recognize today as the share price is up by double digits.
Moreover, I would argue Cisco remains undervalued, especially when future earnings growth is expected to ratchet back up to double-digit levels. Cisco is a very widely followed technology bellwether. Currently, 41 analysts reporting to Standard & Poor's Capital IQ forecast Cisco's five-year estimated earnings growth rate at 9%. Considering today's earnings beat, these estimates may increase, perhaps even into double-digit territory. Nevertheless, even after today's strong performance, Cisco offers shareholders great value, growth and a dividend yield exceeding 3% and growing. This recently announced upcoming event highlights some of the long-term growth opportunity that Cisco sees: Cisco VNI Global IP Traffic Forecast (2012-2017) (Live Webcast May 29, 2013, at 8:00 a.m. Pacific/11:00 a.m. Eastern)Networks are an essential part of business, education, government, and home communications...Highlights include the following projections:By 2017, there will be 3.6 billion global Internet users, up from 2.3 billion global Internet users in 2012.By 2017, there will be 19 billion networked devices globally, up from 12 billion networked devices in 2012.By 2017, average global broadband speed will grow 3.5-fold from 2012 to 2017, from 11.3 Mbps to 39 Mbps.By 2017, global IP traffic will reach an annual run rate of 1.4 zettabytes, up from 523 exabytes in 2012. Conclusion I believe Cisco is a high-quality, undervalued technology blue-chip that is morphing from a pure growth stock into an above-average dividend growth stock. Consequently, I believe its low valuation greatly mitigates risk and that Cisco offers above-average capital appreciation coupled with an above-average and growing dividend yield. Consequently, I believe it is both a growth stock and a dividend stock that is attractively valued in today's overheated market. At the time of publication the author was long CSCO. This article was written by an independent contributor, separate from TheStreet's regular news coverage.