To machine an Undercut feature, you have to use a tool of the type Side Milling.

The parameters of a Side Milling tool (as shown in the following illustration) are:

When selecting a Side Milling tool to machine an Undercut feature, make sure that the Cutter Width of the tool is smaller than the vertical depth of the Undercut, and that the difference between Cutter Diameter/2 and Shank Diameter/2 is greater than the horizontal depth of the Undercut. The following illustration shows a side view of a Side Milling tool machining an Undercut.