After the closing bell on Wednesday, one of the tech primes - Cisco Systems CSCO - came up with its fiscal first-quarter results. Both the top and the bottom line topped out estimates but provided a weak revenue guidance. The tepid outlook dampened investors' mood, sending shares of Cisco tumbling as much as 5.4% in aftermarket hours.
Cisco Q1 Results in Focus
Earnings of 55 cents per share surpassed the Zacks Consensus Estimate by a penny. Revenues rose 1% year over year to $12.35 billion and were slightly ahead of our estimate of $12.34 billion. Though this represents the twelfth consecutive quarter of a revenue beat, growth has slowed significantly since fiscal 2010 when Cisco reported an 11% increase.
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 and is growing slowly. As a result, Cisco expects revenues to decline 2-4% year over year for the ongoing fiscal second quarter. The projection fell short of the Zacks expectation of a 1.3% increase (read: Pain Ahead for Cyber Security ETFs as Q3 Unfolds? ).
Earnings per share are expected in the range of 55-57 cents, the midpoint of which is much above the Zacks Consensus Estimate of 54 cents.
Should You Buy Cisco?
Currently, Cisco has a Zacks Rank #2 (Buy) with a VGM Style Score of B and boasts a solid Industry Rank in the top 34%, indicating that the current dip might be a good buying opportunity.
Most investors believe that President-elect Donald Trump's proposed plan of big infrastructure projects and a potential tax holiday could benefit the company in a huge way. In particular, is the tax holiday is created, it would bring back huge cash piles from outside the U.S. given that Cisco's offshore cash balance is the third largest in the tech space after Apple AAPL and Microsoft MSFT (read: The Trump Effect: 8 Must-See ETF Charts ).
Given this, ETFs having the largest allocation to this network giant will be in focus for the days ahead. 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 24 securities in its basket, Cisco takes the fifth spot with a 7.9% allocation. The product has accumulated $114 million in its asset base while sees a moderate volume of around 77,000 shares a day. Expense ratio comes in at 0.48%. The fund has gained 18.7% in the year-to-date timeframe and has a Zacks ETF Rank of 1 or 'Strong Buy' rating with a High risk outlook (see: all the Technology ETFs here ).
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 $579.1 million in its asset base and trades in moderate volume of about 85,000 shares per day. The ETF charges 50 bps in annual fees and holds about 98 securities in its basket. Of these firms, CSCO occupies the third position, making up roughly 8% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by software (14.8%), diversified telecom services (14%), technology hardware, storage & peripherals (13.9%), and communications equipment (10.8%). The fund is up 16.8% 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 nearly $110.5 million in its asset base. The fund charges 60 bps and trades in a light average daily volume of about 28,000 shares. In total, the product holds 33 stocks in its basket, with Cisco taking the fourth spot at 5.8%. It is skewed toward the software industry at 46.2%, while communications equipment rounds off the next spot at 20% of assets. The fund has risen 14.9% in the year-to-date timeframe (read: Cyber Security ETFs in Hot Spot: Here's Why ).
PowerShares Dynamic Networking Portfolio PXQ
This fund follows the Dynamic Networking Intellidex Index, holding 29 securities in its basket. Out of these, Cisco is the sixth firm accounting for 4.9% share. From a sector look, communication equipment dominates the fund's portfolio at 55% of the assets, followed by 29% in software and programming. The fund is unpopular and illiquid in the broad tech space with AUM of $32.2 million and average daily volume of about 5,000 shares. It charges 63 bps in annual fees and has gained 17% in the year-to-date time frame. PXQ has a Zacks ETF Rank of 1 with a High risk outlook.
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