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Cisco Beats but Shares Fall: ETFs in Focus

Sweta Killa
Tilly's (TLYS) closed the most recent trading day at $16.18, moving -0.98% from the previous trading session.

After the closing bell on Wednesday, one of the tech primes, Cisco Systems CSCO reported better-than-expected fiscal 2018 third-quarter results. The networking giant topped estimates on both revenues and earnings and provided an upbeat outlook.

Results in Detail

Earnings of 66 cents per share outpaced the Zacks Consensus Estimate by a penny and improved 10% from the year-ago earnings. Revenues rose 4% year over year to $12.46 billion and edged past the estimated $12.42 billion.

The networking leader’s transition from its traditional business of high-end switches and routers to high-growth areas such as security, the Internet of Things and cloud computing is paying off. As a result, Cisco now expects revenue growth of 4-6% in the fiscal fourth quarter and earnings per share in the range of 68-70 cents. The mid-point of both the ranges is higher than the Zacks Consensus Estimate, which projects revenue growth of 4.75% and earnings per share of 68 cents (read: Tech ETFs to Lead Again On Power-Packed Earnings).

Despite the solid results and a bullish outlook, Cisco shares declined more than 4% in after-hours trading on heavy volumes. Though the fall may not be justified, the beaten down price could be an attractive opportunity for investors to stock up Cisco shares. This is because Cisco currently has a Zacks Rank #2 (Buy) and a VGM Score of B. The stock has been the second biggest gainer among the Dow components, climbing 18% on a turnaround story. However, it belongs to a bottom-ranked industry (bottom 18%).

ETFs to Watch

ETFs having the largest allocation to this network giant will be in focus over the coming days. Investors should closely monitor the movement in these funds and grab the opportunity when it arises (see: all the Technology ETFs here):

iShares U.S. Telecommunications ETF IYZ

This fund follows the Dow Jones U.S. Select Telecommunications Index and offers exposure to 45 American companies that provide telephone and Internet products, services, and technologies. Cisco occupies the top position with 15.9% of the assets. The ETF has AUM of $320.3 million and trades in average daily volumes of 350,000 shares. It charges 44 bps in annual fees and has a Zacks ETF Rank #4 (Sell).

iShares North American Tech-Multimedia Networking ETF IGN

This ETF provides a concentrated exposure to 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 a 9% allocation. The product has accumulated $101.5 million in its asset base while seeing a lower volume of around 18,000 shares a day. Expense ratio comes in at 0.48%. The fund carries a Zacks ETF Rank #3 (Hold) with a High risk outlook.

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 $882.2 million in its asset base and trades in moderate volume of about 79,000 shares per day. The ETF charges 50 bps in annual fees and holds about 94 securities in its basket. Of these firms, CSCO occupies the fourth position, making up roughly 8.1% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by software (14.7%), technology hardware, storage & peripherals (14.3%), and diversified telecom services (11.7%).

First Trust Nasdaq 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 $611.6 million in its asset base. The fund charges 60 bps in annual fees and trades in an average daily volume of about 146,000 shares. In total, the product holds 33 stocks in its basket, with Cisco taking the fourth spot at 5.7%. It is skewed toward the software industry at 51.5%, while communications equipment rounds off the next spot at 19.1% of assets (read: Why Cybersecurity ETFs are Soaring This Year).

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 third firm, accounting for 5.1% share. The fund is relatively unpopular and illiquid in the broad tech space with AUM of $62.3 million and average daily volume of about 11,000 shares. It charges 63 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.

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