After the closing bell on Wednesday, one of the tech primes - Cisco Systems CSCO - came up with mixed fiscal second-quarter results. While the company topped our earnings estimate, revenue fell shy. Additionally, it provided a bleak revenue outlook that took a toll on investors' sentiment, making trading in CSCO shares volatile.
After the initially drop, following the result, Cisco shares were up 2.13% in after-market hours yesterday. Additionally, the stock is up 1.5% in pre-market trade today at the time of writing.
Cisco Q2 Results in Focus
Earnings of 53 cents per share surpassed the Zacks Consensus Estimate by three cents. Revenues decreased 2.9% year over year to $11.58 billion and were slightly below our estimate of $11.59 billion.
The networking leader continued to struggle with its traditional business of high-end switches and routers due to sluggish demand. Though the company is ramping up its wireless and security businesses to offset this weakness, the new business is yet to pay off..
As a result, Cisco expects revenues to decline as much as 2% year over year for the ongoing fiscal third quarter. The projection is worse than the Zacks expectation of a 1.12% decline. Earnings per share are expected in the range of 57-59 cents, the midpoint of which is much above the Zacks Consensus Estimate of 53 cents (see: all the Technology ETFs here ).
Based on solid Q4 earnings, the company boosted its quarterly dividend by three cents to 29 cents per share.
Currently, Cisco has a Zacks Rank #4 (Sell) with a VGM Style Score of B and boasts a ugly Industry Rank in the bottom 23%, indicating that the some pain might be in store for the stock.
Given this, ETFs having the largest allocation to this network giant will be in focus in the coming days. Investors should closely monitor the movement in these funds and grab the opportunity when it arises or avoid if the stocks drags them down:
iShares North American Tech-Multimedia Networking ETF IGN
This ETF provides a concentrated exposure to the domestic multimedia networking securities by tracking the S&P North American Technology-Multimedia Networking Index. Holding 25 securities in its basket, Cisco takes the second spot with an 8.7% allocation. The product has accumulated $76.3 million in its asset base while sees a lower volume of around 50,000 shares a day. Expense ratio comes in at 0.47%. The fund has gained nearly 7% in the year-to-date timeframe and has a Zacks ETF Rank of 2 or 'Buy' rating with a High risk outlook (read: Technology ETFs Hitting All-Time High ).
First Trust NASDAQ Technology Dividend Index Fund TDIV
This fund provides exposure to the dividend payers in the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $676.7 million in its asset base and trades in moderate volume of about 94,000 shares per day. The ETF charges 50 bps in annual fees and holds about 95 securities in its basket. Of these firms, CSCO occupies the third position, making up roughly 8.2% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by technology hardware, storage & peripherals (14.8%), software (14.5%), diversified telecom services (14.3%), and communications equipment (11%). The fund is up 6.3% so far this year.
First Trust NASDAQ CEA Cybersecurity ETF CIBR
This ETF follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cyber security segment of the technology and industrials sectors. It has accumulated $173.7 million in its asset base. The fund charges 60 bps in annual fees and trades in a light average daily volume of about 57,000 shares. In total, the product holds 30 stocks in its basket, with Cisco taking the fourth spot at 6.7%. It is skewed toward the software industry at 55.3%, while communications equipment rounds off the next spot at 20.9% of assets. The fund has risen about 10% in the year-to-date timeframe (read: Will Cybersecurity ETFs Surge in 2017? ).
PowerShares Dynamic Networking Portfolio PXQ
This fund follows the Dynamic Networking Intellidex Index, holding 30 securities in its basket. Out of these, Cisco is the fifth firm accounting for 5.3% share. From a sector look, communication equipment dominates the fund's portfolio at 50% of the assets, followed by 31% in software and programming. The fund is unpopular and illiquid in the broad tech space with AUM of $26.3 million and average daily volume of about 8,000 shares. It charges 63 bps in annual fees and has gained 7.3% in the year-to-date time frame. PXQ has a Zacks ETF Rank of 2 with a High risk outlook.
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