U.S. Markets closed

Cisco Sinks on Weak Guidance: ETFs to Watch

Sweta Killa

After the closing bell on Wednesday, one of the tech primes – Cisco Systems CSCO – came up with solid fiscal third-quarter results, beating our estimates for both the top and the bottom line. However, investors were disappointed with a bleak revenue guidance.

Earnings of 54 cents per share surpassed the Zacks Consensus Estimate by a penny. Revenues declined 1% year over year to $11.90 billion but edged past our estimate of $11.89 billion.

The networking leader has been transitioning its traditional business of high-end switches and routers to high-growth areas such as security, the Internet of Things and cloud computing. As a result, Cisco expects revenues to decline 4-6% year over year for the ongoing fiscal fourth quarter. The projection is worse than the Zacks Consensus Estimate of a 0.94% decline. Earnings per share are expected in the range of 60–62 cents, the midpoint of which is much above the Zacks Consensus Estimate of 58 cents (see: all the Technology ETFs here).

The bleak revenue outlook took a toll on investors’ sentiment, pushing CSCO shares down as much as 8.6% in after-hours trading yesterday. Additionally, the stock lost 7.5% in pre-market trade today at the time of writing.

Currently, Cisco has a Zacks Rank #4 (Sell) with a VGM Style Score of B and boasts a dismal Industry Rank in the bottom 8%, indicating that the some pain is in store for the stock. Further, the world's largest networking gear maker has returned 13.7% over the past one year, much below the Zacks categorized Computer – Networking industry’s return of 22.8%.



ETFs to Watch

Given this, 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 or avoid if the stocks drags them down (read: 5 Hot Tech ETF Charts with Upside Potential):

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 fourth spot with an 8.5% allocation. The product has accumulated $80.2 million in its asset base while sees a lower volume of around 31,000 shares a day. Expense ratio comes in at 0.47%. The fund has added 2.2% in the year-to-date timeframe and has a Zacks ETF Rank of 2 or ‘Buy’ rating 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 $723.2 million in its asset base and trades in moderate volume of about 93,000 shares per day. The ETF charges 50 bps in annual fees and holds about 89 securities in its basket. Of these firms, CSCO occupies the third position, making up roughly 7.9% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by software (15.3%), diversified telecom services (14.7%), technology hardware, storage & peripherals (13.5%), and communications equipment (10.7%). The fund is up 6.9% so far this year.

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 $227.3 million in its asset base. The fund charges 60 bps in annual fees and trades in a moderate average daily volume of about 86,000 shares. In total, the product holds 30 stocks in its basket, with Cisco taking the third spot at 6%. It is skewed toward the software industry at 57.8%, while communications equipment rounds off the next spot at 18.1% of assets. The fund has risen about 10.8% in the year-to-date timeframe (read: Cybersecurity ETFs Set to Rally After a Global Cyberattack).

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 eighth firm accounting for a 4.9% share. From a sector look, communication equipment account or half of the portfolio, followed by 28% in software and programming. The fund is unpopular and illiquid in the broad tech space with AUM of $27.1 million and average daily volume of about 7,000 shares. It charges 63 bps in annual fees and has gained 9% in the year-to-date time frame. PXQ has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>