CSCO puts for earnings are a no brainer

Is anyone familiar with the tech company, Cisco Systems? I just wanted to do a really quick write-up on the stock to see if anyone's playing earnings. They're announcing their Q4 results today, after hours.

The expected earnings are currently $0.849 per share as opposed to earnings of $0.970 per share from the same quarter last year. Analysts are expecting the company to report $13.53 billion, a decrease of 10.97% over the prior year quarter when the company reported $15.20 billion. For the fiscal year, analysts expect earnings per share of $3.70 compared to $3.08 in the previous year. On average, they are expecting revenue to come in at $53.70 billion, compared to $ 57.00 billion last year. Doesn't seem very bullish? We have to keep in mind that when expectations are set low, they're easy to beat. But that doesn't necessarily mean the stock will shoot up.

Looking at the historical data, the company has surpassed the consensus EPS estimates in all of the last nine quarters. I think this quarter will be no different. Just a few days ago, the announced mass layoffs which is of course some might consider bullish. But the stock did drop with this news. This is part of Cisco’s efforts to focus on areas like cybersecurity and AI. Or rather, giving jobs to AI. The announcement is expected to come with Cisco’s fourth-quarter results.

Cisco has been suffering from slow networking sales. This is primarily due to lackluster demand from telecommunication and cable services providers, as well as a lot of competition. Excess inventory with customers has dragged down growth in the recent past.

In the third quarter of fiscal 2024, Cisco reported revenues of $12.7 billion, which declined 12.8% year over year, primarily due to an 18.6% decline in product revenues, which accounted for 71% of total revenues. Excluding Splunk (acquisition completed on Mar 18, 2024), product orders were unchanged year over year, reflecting sluggish demand.

We also need to note that Cisco's prospects face additional obstacles in the field of AI-driven networking because of the stiffening competition caused by Hewlett Packard’s HPE deal to acquire Juniper for roughly $14 billion.

Hewlett Packard’s multi-billion-dollar investment plan across expanding networking capabilities is noteworthy. With its rapidly expanding networking business branch, Aruba Networks, it has connected distributed computing, AI, and the Industrial Internet of Things (IIoT).

Keep in mind tho, Cisco is benefiting from strong security growth driven by robust demand for solutions like XDR, Secure Access and Multicloud Defense suites. Also, acquisitions including Splunk and Isovalent, have helped in strengthening the portfolio. The addition of Splunk enhances the recurring revenue base of CSCO. Annual Recurring Revenues surged 22% to $29.2 billion in the fiscal third quarter. The trend is expected to have continued in the to-be-reported quarter. That being said, I'll still be getting puts.

According to the option chain, it looks like a 6.6% move in either direction is priced in. This is actually more than how much the stock moves on average with earnings, up or down. But I figured, why not shoot my shot and get CSCO 8/16 45p @ 1.19. They're cheap and will offer 2x gains if the stock were to drop 6.7%.