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Semiconductor ETFs Shine On Q2 Earnings Beat

Zacks Equity Research

Major semiconductor companies came up with mixed earnings results during the second quarter. However, semiconductor ETFs succeeded in registering healthy gains in recent times as the major companies reported better-than-expected earnings. These ETFs are also expected to be on investors’ radar in the coming days as the impact of earnings results of major components from the sector will be closely watched.

Four major companies from the sector – Texas Instruments Inc. TXN, Intel Corporation INTC, QUALCOMM Incorporated QCOM and Micron Technology, Inc. MU – reported better-than-expected earnings. Revenues of Intel came in line with our estimate and that of Micron Technology failed to beat. However, revenues of Texas Instruments and QUALCOMM outpaced the Zacks Consensus Estimate (read: Qualcomm Dividend Hike Put These Semiconductor ETFs in Focus).

Semiconductor Earnings in Detail          

Shares of Texas Instruments climbed 5.9% in after-hour trading yesterday after the company posted higher-than-expected second-quarter earnings per share. The company’s earnings of 76 cents per share (excluding special items) beat the Zacks Consensus Estimate of 72 cents and increased 16.9% year over year. Revenues of $3.27 billion increased 1.3% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $3.21 billion.

For the ongoing third quarter, the company projects revenues in the range of $3.34–$3.62 billion and earnings per share of 81–91 cents. The midpoint of the revenue and earnings projections were better than the Zacks Consensus Estimate of $3.39 billion and 81 cents, respectively, at the time of issuing the guidance (read: Why Semiconductor ETFs Are Hitting Highs).

Also, QUALCOMM beat our estimates on both the top and the bottom lines. The company’s fiscal third quarter adjusted (excluding special items) earnings per share came in at $1.03, beating the Zacks Consensus Estimate of 83 cents. Total quarterly revenue of $6,044 million was up 3.6% year over year and ahead of the Zacks Consensus Estimate of $5,553 million. While fiscal fourth-quarter revenues are estimated in the range of $5.4-$6.2 billion, non-GAAP earnings per share are estimated between $1.05 and $1.15.

Additionally, Intel, the world’s largest chipmaker, reported second-quarter revenues of $13.53 billion, in line with the Zacks Consensus Estimate. Earnings per share of 59 cents, however, beat the Zacks Consensus Estimate of 53 cents. Moreover, Intel guided third-quarter revenues of around $14.9 billion, up 10.1% sequentially and 3.0% from the June quarter of 2015. Also, for 2016, management expects Intel to see revenue growth in the mid-single digits. Operating expenses are now projected at $20.7 billion compared with the earlier expectation of $20.6 billion.

Shares of Micron Technology rose nearly 1.2% following its fiscal third quarter results on May 30, after the closing bell. The company reported adjusted loss per share (excluding the impact of one-time items) of 8 cents, narrower than the Zacks Consensus Estimate of a loss of 11 cents. However, the company has reported adjusted earnings of 54 cents per share in the year-ago quarter. Micron’s revenues decreased 24.8% on a year-over-year basis to $2.898 billion and lagged the Zacks Consensus Estimate of $2.949 billion (read: Semiconductor and U.S. Mid Cap: 2 ETFs to Watch on Outsized Volume).

4 ETFs to Watch

Earnings beat of the major semiconductor companies helped ETFs from this sector to witness significant gains in recent times. These ETFs are also speculated to be in focus in the coming days following the sector’s earnings performance. Against this backdrop, we have highlighted four semiconductor ETFs that gained significantly in recent times and are expected to draw investor attention in the near term (read: Slew of Earnings Beat Fail to Cheer Semiconductor ETFs).

iShares PHLX Semiconductor SOXX

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 domestic firms. The in-focus four firms are among the top 10 holdings accounting for a combined 24.9% share in the basket. About 60% of the portfolio is dominated by large cap stocks while mid caps take the remainder, with just 10% going to small caps. The fund has amassed $409.3 million in its asset base and trades in impressive average volume of roughly 468,000 shares a day. The product charges 47 bps in fees a year from investors and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook. The ETF gained 15% and 3% respectively over the past one-month and five days.

VanEck Vectors Semiconductor ETF SMH

This fund provides exposure to 26 securities by tracking the Market Vectors US Listed Semiconductor 25 Index. Of these, four firms – INTC, QCOM and TXN – occupy the first, third and fifth positions, respectively, collectively accounting for more than one-fourth of the portfolio. From a market cap look, the product focuses on large cap stocks, which account for about 74% of the portfolio. The product has managed assets worth $283.3 million and charges 35 bps in annual fees and expenses. It is heavily traded with volume of around 2 million shares per day and has a Zacks ETF Rank #2 (Buy) with a High risk outlook. The ETF gained 16.6% and 1.8% respectively over the past one-month and five days.

SPDR S&P Semiconductor ETF XSD

This fund tracks the S&P Semiconductor Select Industry Index, holding 41 stocks in its portfolio. It is widely spread across securities as none of these allocates more than 3.9% of the assets. The product has a definite tilt toward small cap stocks at 41% while the rest is split between the other two market cap levels. The fund is less popular with AUM of $204.7 million and average daily volume of around 97,000 shares. It charges 35 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook. The ETF gained 16.8% and 2.9% respectively over the past one-month and five days.

PowerShares Dynamic Semiconductors ETF PSI

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities with INTC and TXN taking the second and fourth positions, respectively, with total allocation of 10.1%. Here again, the ETF is skewed toward small caps at 55% while mid caps and large caps account for 26% and 20%, respectively. The product, with AUM of $52.5 million is often overlooked by investors and hence sees a lower average daily volume of 13,000 shares. Expense ratio comes in at 0.63%. PSI has a Zacks ETF Rank #2 with a High risk outlook. The ETF gained 16% and 1.6% respectively over the past one-month and five days.

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QUALCOMM INC (QCOM): Free Stock Analysis Report
 
INTEL CORP (INTC): Free Stock Analysis Report
 
TEXAS INSTRS (TXN): Free Stock Analysis Report
 
MICRON TECH (MU): Free Stock Analysis Report
 
ISHARS-PHLX SEM (SOXX): ETF Research Reports
 
PWRSH-DYN SEMI (PSI): ETF Research Reports
 
VANECK-SEMICON (SMH): ETF Research Reports
 
SPDR-SP SEMICON (XSD): ETF Research Reports
 
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