Option Trade
Cisco Systems, Inc. (NASDAQ:CSCO) PUTS
Monday, August 14, 2017

** OPTION TRADE: Buy the CSCO SEPT 15 2017 31.000 PUT at approximately $0.60. Place a pre-determined sell at $1.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.25.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

by Ian Harvey   

The computer networking giant Cisco Systems, Inc. (NASDAQ:CSCO), that designs and sells a range of products, provides services and delivers integrated solutions to develop and connect networks around the world, reports fiscal Q4 earnings on Wednesday, August 16, 2017, after the market closes. Analysts expect EPS to fall 3% to 61 cents, with sales sliding 4.5% to $12.06 billion, and the Earnings Whisper number is $0.63 per share. Cisco Systems, in June, lowered its long-term revenue growth outlook to a range of 1%-3% annually over the next three to five years.

Overall earnings estimates have been revised lower since the company's last earnings release.

And recent market sentiment, based on NVIDIA’s earnings report last week, and the market reaction, the numbers will probably not mean much right now. It's all about gaming sentiment at this point.

Cisco stock has wandered aimlessly in a broad range and is now in a technical battle that will determine the next 5-10% move in the shares -- and the catalyst to determine this will probably be the upcoming earnings report.

Currently, the 50-day moving average is trading below the 200-day, which is bearish for the stock’s outlook, adding potential pressure to the need for Cisco shares to rally.

 Adding to the bearish outlook, CSCO’s 100-day moving average is overhead at $32.45. If the shares are able to break above the 200-day they will immediately run into this additional hurdle. In all, there aren’t any trends that are Cisco’s friend right now.

Cisco Systems’ 50 day moving average price is $31.54 and its 200 day moving average price is $32.53. The firm has a market cap of $157.35 billion, a price-to-earnings ratio of 15.97 and a beta of 1.24. Cisco Systems has a 12-month low of $29.12 and a 12-month high of $34.60.

Influencing Factors

Cisco Systems lies in the middle of a wide and falling trend in the short term and pointed towards extra losses. Short-term traders are anticipated to see a retreat of -6.94% over the course of a quarter and, with 90% chance the price will be floating in the range of $27.30 and $30.08 in this timeframe. CSCO has witnessed its long term and short term MA triggering a sell signal.

Cisco Systems was the largest player in the Worldwide Security Appliance Market at the end of 2016, but Cisco’s revenue growth was the lowest among the major players in this space at 4.0%.

Huawei saw a revenue rise of 70.3%, followed by Palo Alto, Fortinet, and Check Point Software Technologies at 34.9%, 25.5%, and 9.9%, respectively, in 2016.

In fiscal 3Q17, Cisco’s Collaboration segment revenue fell 4.0% YoY (year-over-year) to $1.02 billion, from $1.06 billion in fiscal 3Q16. Cisco leads the collaboration space with a share of 15.0% at the end of 4Q16. Microsoft (MSFT) and IBM (IBM) are the two other major players with shares of 12.0% and 4.0%, respectively, at the end of 4Q16.

Cisco Systems’ Switching business revenue has fallen 4.0% YoY (year-over-year) to $10.5 billion in the first nine months of fiscal 2017. The revenue fell 7.0% YoY in fiscal 1Q17 to $3.7 billion, and it fell 5.0% YoY to $3.3 billion in fiscal 2Q17. It rose 2.0% YoY to $3.5 billion in fiscal 3Q17. Switching is Cisco’s largest business segment and accounts for approximately 30.0% of its total revenue.

Cisco’s Routing business revenue has fallen 2.0% YoY (year-over-year) to $5.9 billion in the first nine months of fiscal 2017. Revenue rose 6.0% YoY in fiscal 1Q17 to $2.1 billion and fell 10.0% YoY to $1.8 billion in fiscal 2Q17 and 2.0% YoY to $2.0 billion in fiscal 3Q17. Routing is Cisco’s second-largest business segment and accounts for approximately 17.0% of its total revenue.

In the worldwide routing space, Cisco has a market share of 43.9% at the end of 1Q17, compared to 48.8% in 1Q16 and 42.2% in 4Q16. Juniper Networks and Huawei have market shares of 15.6% and 19.8%, respectively, at the end of 1Q17.

Cisco is facing competition from China’s (FXI) Huawei, which has significantly grown its share in the routing and switching markets over the last few years. Huawei is targeting growth in emerging markets and has become one of the leading telecommunications hardware firms.

In the trailing 12-month period, Cisco Systems stock has risen 2.1%. In the last month, it has risen 2.5%. Since the start of 2017, it has risen 2.6% after rising 15.2% in 2016. The stock has also generated marginal returns of 0.06% in the last five trading days.

In comparison, technology peers Juniper Networks (JNPR), Europe’s (EFA) Nokia (NOK), and Ericsson (ERIC) have generated returns of 22.0%, 17.0%, and -16.0%, respectively, in the trailing 12-month period.

Analysts and Hedge Funds Opinions

Zacks Investment Research have a “hold” rating on Cisco Systems stated in a report released on Tuesday, July 18th.

According to Zacks, “Cisco Systems is the leading provider of IP-based networking and other products. Nevertheless, intensifying competition from several smaller players, slowing order growth from service providers and challenges in the emerging markets are the primary headwinds. We note, the company has underperformed the S&P 500 index on a year-to-date basis. Revenues are expected to decline due to lower order growth in the reported quarter, which affected backlog.”

Several other analysts have also recently commented on the company…..

BidaskClub cut shares of Cisco Systems from a hold rating to a sell rating in a research note published on Monday, July 31st.

Instinet restated a “neutral” rating and set a $29.00 target price on shares of Cisco Systems in a report on Monday, July 3rd.

BMO Capital Markets downgraded Cisco Systems from an outperform rating to a market perform rating and lowered their price objective for the company from $37.00 to $35.00 in a research report on Tuesday, May 9th.

J P Morgan Chase & Co restated a “neutral” rating on shares of Cisco Systems in a research note on Monday, June 26th.

Vetr lowered Cisco Systems from a “strong-buy” rating to a “buy” rating and set a $37.03 price objective on the stock in a research note on Wednesday, April 26th.

Finally, William Blair restated an “outperform” rating on shares of Cisco Systems in a report on Monday, July 3rd.

One equities research analyst has rated the stock with a sell rating, thirteen have issued a hold rating and twenty-two have given a buy rating to the company’s stock. The company has an average rating of “Buy” and an average target price of $35.31.

Several institutional investors have recently made changes to their positions in the stock…..

Rand Wealth LLC decreased its stake in shares of Cisco Systems by 0.2% during the first quarter. The firm owned 237,500 shares of the network equipment provider’s stock after selling 418 shares during the period.

Douglas Lane & Associates LLC lowered its stake in shares of Cisco Systems by 3.0% during the second quarter. The fund owned 1,977,780 shares of the network equipment provider’s stock after selling 60,351 shares during the period.

In other news, SVP Karen Walker sold 7,802 shares of the business’s stock in a transaction on Tuesday, June 13th. The shares were sold at an average price of $31.29, for a total transaction of $244,124.58.

Also, insider John T. Chambers sold 295,537 shares of the business’s stock in a transaction on Wednesday, May 24th. The shares were sold at an average price of $31.52, for a total transaction of $9,315,326.24.

As well, SVP Rebecca Jacoby sold 92,840 shares of the stock in a transaction that occurred on Wednesday, June 14th. The stock was sold at an average price of $31.71, for a total value of $2,943,956.40.

Harvey’s Options Volatility Indicator

Summary

Option traders are pricing in a 4.3% move on earnings and the stock has averaged a 4.8% move in recent quarters.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 

** OPTION TRADE: Buy the CSCO SEPT 15 2017 31.000 PUT at approximately $0.60. Place a pre-determined sell at $1.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.25.

 

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.



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