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ETFs to Surge on Cisco's Solid Results

Sweta Killa

After the closing bell on Wednesday, tech prime Cisco Systems CSCO reported robust fiscal 2019 second-quarter results. The networking giant topped estimates on both revenues and earnings and provided an upbeat outlook.

Results in Detail

Earnings of 73 cents per share outpaced the Zacks Consensus Estimate by a penny and improved from the year-ago earnings of 63 cents. Revenues rose 7% year over year to $12.45 billion and edged past the estimated $12.40 billion. The robust results were driven by strength in its newer applications and security businesses and shrugged off the impact of the U.S.-China trade war on its networking gear business.

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 clearly paying off. As a result, Cisco now expects revenue growth of 4-6% and earnings per share in the range of 76-78 cents in third-quarter fiscal 2019. The low-end of both the ranges is above the Zacks Consensus Estimate of 2.7% for revenue growth and earnings per share of 75 cents (see: all the Technology ETFs here).

Cisco raised its quarterly dividend by 6% to 35 cents a share and boosted its share buyback program by $15 billion to $24 billion.

Buoyed by solid results and encouraging guidance, Cisco shares rallied as much as 4% in after-hours trading on heavy volumes. The stock currently has a Zacks Rank #3 (Hold) and a VGM Score of B. Additionally, it belongs to a top-ranked industry (top 30%).

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.

iShares U.S. Telecommunications ETF IYZ

This fund follows the Dow Jones U.S. Select Telecommunications Index and offers exposure to 43 American companies that provide telephone and Internet products, services, and technologies. Cisco occupies the top position with 14.7% of the assets. The ETF has AUM of $471.4 million and trades in average daily volumes of 643,000 shares. It charges 43 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares North American Tech-Multimedia Networking ETF IGN

This ETF provides concentrated exposure to domestic multimedia networking securities by tracking the S&P North American Technology-Multimedia Networking Index. Holding 21 securities in its basket, Cisco takes the third spot with an 8.2% allocation. The product has accumulated $53.6 million in its asset base, while seeing a lower volume of around 12,000 shares a day. Expense ratio comes in at 0.47%. The fund carries a Zacks ETF Rank #2 with a High risk outlook (read: Forget FAANGs, Invest in These Tech ETFs Instead).

First Trust NASDAQ Technology Dividend Index Fund TDIV

This fund provides exposure to dividend payers in the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $905.2 million in its asset base and trades in moderate volume of about 103,000 shares per day. The ETF charges 50 bps in annual fees and holds about 97 securities in its basket. Of these firms, CSCO occupies the third position, making up roughly 7.83% of the assets.

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 $777.1 million in its asset base. The fund charges 60 bps in annual fees and trades in average daily volume of about 194,000 shares. In total, the product holds 37 stocks in its basket, with Cisco taking the fifth spot at 5.7% (read: Cybersecurity ETFs Rally on Solid Earnings).

Invesco Dynamic Networking ETF PXQ

This fund follows the Dynamic Networking Intellidex Index, holding 28 securities in its basket. Out of these, Cisco is the sixth firm, accounting for 4.93% share. The fund is relatively unpopular and illiquid in the broad technology space, with AUM of $56.1 million and average daily volume of about 194,000 shares. It charges 63 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.

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