It is another beautiful Monday and I am excited about the possibilities that this week hold. This week we will be examining the options of companies in the cybersecurity industry as data breaches brings the threat posed by cybercrime/cyberwarfare to the limelight. The Target data breach, which cost the company some $250M is not far off in our minds, we still remember the Sony hack, and the leaked celebrity nude pictures show that everyone is at risk.
Today, we will examine the options of Cisco Systems, Inc. (NASDAQ:CSCO). Cisco with its market capitalization of $141.29B designs, manufactures, and sells Internet protocol (IP)-based networking products and services related to the communications and information technology (IT) industry. The Company also provides services associated with these products and their use and provides products and services for transporting data, voice, and video traffic across intranets, extranets, and the Internet.
Why We Are Looking at Cisco Today?
I think we should start our coverage of cybersecurity stocks with Cisco as the company seats on the top strata of IT companies. It might interest you to know that security is one of the reporting segments of Cisco but the company has other major reporting segments, which in turn adds a degree of diversification to Cisco’s revenue lines. Hence, buying Cisco options allows us to exploit opportunities in the cybersecurity industry without completely opening up to the risks of pureplay security stocks.
Cisco is currently attractive to investors as the stock rewards both growth and income hunters. For instance, as at 10:01 AM EST today, shares of Cisco have gained 0.24% to $27.31 per share. Shares of Cisco have gained a decent 19.94% compared to a gain of 12% in the S&P 500 in the last one year. On the income side, Cisco pays a dividend of $0.19 per quarter, which is more than the $0.06 per share that the company initiated in 2011. Cisco currently pays a dividend of 2.8%.
Shares of Cisco are trading around $27.31 to mark a 28.39% premium to the 52-Week low of $21.27 and to mark a 5.08 % discount the 52-Week high of $28.70. Interestingly, Cisco has an RSI of 48.75 as it trades at a discount to its 50-day moving average of $27.52; hence, we can safely posit that the stock has upside potential ahead.
Shares of Cisco trade with a P/E of 18.53X TTM and with a forward P/E of 12X. The PE makes the stock significantly undervalued in relation to P/E of its peers in the tech and IT security industry. In addition, the stock is currently trading at 2.4X its book value, it has a manageable amount of debt (about $21) and the company is flush with cash on hand at about $47.3B.
How to Trade CSCOQ
Cisco is set to release its second quarter (Q2 2015) results on Wednesday and a strong momentum is building up in the possibility that the company will deliver another season of outperformance. The consensus estimate is for earnings of $0.51 per share on revenue of $11.8B. In the last reported quarter, Cisco beat on revenues and earnings but posted a weaker than expected outlook. However, I posit that the week outlook will cause people to expect less from the company and it would make it easy for the company to deliver beyond expectations.
I am optimistic that Cisco will deliver another stellar performance on Wednesday and that the stock will soar to new highs on the strength of the impressive quarterly results. I recommend buying the CSCO May 2015 27.000 call (CSCO150515C00027000) at an asking price of $1.29.
— Daily Option Alerts