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Shares of networking giant Cisco Systems Inc (CSCO) have dropped nearly 5% to under $15.50 this Tuesday, likely on news that Cisco will lay off another 1,300 employees, right on the heels of last year's 10,000-worker cut.

At the current share price ($15.32 as I write this), Cisco looks like it is in deep value turf. The company has $5.87 in cash per share, meaning the ex-cash price per share is under $10. With forward EPS projected at $1.84, the forward P/E is a dirt cheap 5.5.

While Cisco faces macroeconomic headwinds due to a global slowdown, analysts at Sterne Agee still have a $23 price target, representing 44% upside to the current stock price. They're not the only ones who believe the stock is undervalued. Value investor Donald Yacktman, who holds a >4% stake in Cisco in both his Yacktman Fund and his Yacktman Focused Fund, had this to say about Cisco's valuation in his Q2 holdings report:

Cisco declined after releasing cautious earnings guidance. The company has over $5 per share in excess cash and investments on the balance sheet, and we think the business can generate more than $1.60 per share in free cash flow. This puts the stock at less than 8 times adjusted free cash flow, a multiple which we believe hardly requires robust business results.

It is true that Cisco faces challenges. However, it is important to remember that it still has a strong core business: Cisco already owns a 77% global market share of enterprise routing, and integration of cloud solutions gives Cisco added value as the industry transitions toward the cloud. And as Yacktman stated, at the current valuation, explosive growth isn't required - a few quarters of solid execution, and Cisco should start to receive valuations more in-line with the market as a whole.

While Cisco shares are cheap already, investors who think it might decline a little more could use a put writing strategy. The August '12 $16 strike has a good chance of assignment if Cisco stays flat, and results in a cost basis upon assignment of $14.95 - approximately 2.5% lower than the current share price. An investor who thinks Cisco might continue to decline could instead write the $15 strike puts, pocketing a 3% return for the holding period (36% annualized) if assignment does not occur, and getting shares with a $14.51 cost basis if assignment does occur.

(click to enlarge. Source: Nasdaq)

Disclosure: I am long CSCO.

Additional disclosure: I am also long the Yacktman Focused Fund.

Source: Cisco In 'Deep Value' Territory Ahead Of Earnings: 44% Upside