2 Cyber Security ETFs to Shine on Robust Earnings

From Sweta Killa: Amid the broad market sell-off, the cyber security industry appears well poised on higher IT spending budgets, increased cybercrimes and better-than-expected earnings for the July-September quarter. Most of the cyber security firms beat the Zacks Consensus Estimate for both earnings and revenues and offered robust guidance (read: Must-Watch ETF Areas Before Mid-Term Elections).

Let’s check out the earnings of some of the cyber security firms that have the largest allocation to the ETFs in this niche area of the technology sector:

Cyber Security Earnings in Focus

Akamai Technologies AKAM reported third-quarter 2018 earnings per share of 68 cents and revenues of $670 million, outpacing the Zacks Consensus Estimate of 61 cents and $663 million, respectively. On year-over-year basis, earnings surged 51.6% while revenues were up 7%. For the fourth quarter, the company projects revenues in the range of $692-$709 million and earnings between 97 cents and $1.03 per share. It slightly narrowed the revenue guidance from $2.68-$2.71 billion to $2.693-$2.71 for the full year while raised earnings per share projection to $3.53-$3.59 from $3.26-$3.38.

CyberArk Software CYBR outpaced the Zacks Consensus Estimate by 23 cents for earnings and $6 million for revenues. Earnings per share shot up 228% from the year-ago quarter while revenues jumped 31%. The company expects earnings per share of 58.60 cents on revenues of $94.75-$96.25 million, representing 18-20% year-over-year growth for the fourth quarter. Like its peers, CyberArk also raised estimates for the full year with revenues expected in the range of $328.9-$330.4 million and earnings per share in the range of $1.75-$1.77. This is much higher than the previous projection of $320-$324 million for revenues and $1.43-$1.50 for earnings per share.

Check Point Software Technologies CHKP posted earnings per share of $1.38 and revenues of $471 million, outpacing the Zacks Consensus Estimate of $1.36 and $466 million, respectively. On year-over-year basis, earnings grew 6% while revenues were up 4%. For the fourth quarter of 2018, the company expects earnings per share in the range of $1.56-$1.67 and revenues in the $500-$528 million range (see: all the Technology ETFs here).

Symantec’s SYMC earnings per share came in at 42 cents, topping the Zacks Consensus Estimate of 33 cents and up from the year-ago quarter figure of 40 cents. Revenues of $1.18 billion fell 7% year over year but outpaced the consensus mark of $1.14 billion. For third-quarter fiscal 2019, the company expects revenues in the range of $1.16-$1.19 billion and earnings per share in the range of 37-41 cents. For the full fiscal year, Symantec continues to expect earnings per share in the range of $1.47-$1.57 on revenues of $4.67-$4.79 billion.

FireEye’s FEYE earnings of 6 cents per share outpaced the Zacks Consensus Estimate of 2 cents and improved from the year-ago quarter’s loss of 2 cents. Revenues climbed 11.6% year over year to $211.7 million, edging past the estimated $208.4 million. FireEye expects revenues of $214-$218 million and earnings per share of 4-6 cents for the fourth quarter. For the full year, the company raised revenue guidance to $827-$831 million from $820-$830 million and earnings per share guidance to 6-8 cents, up from the previous projection of breakeven to 4 cents.

ETFs in Focus

The string of earnings beat and solid outlook has led cyber security ETFs to perform better than the other technology peers. Both ETFs targeting this niche space have shed less than 2% each in a month. Below we have highlighted them in detail (read: Why to Buy the Dip in FAANG ETFs):

ETFMG Prime Cyber Security ETF HACK

The fund provides global exposure to the cybersecurity industry comprising companies that offer hardware, software, consulting and services to defend against cybercrime. It tracks the Prime Cyber Defense Index, holding 52 securities in its basket. It is well spread out across components with the in-focus five firms accounting for at least 4% share each. From an industrial look, software accounts for nearly 62.5% of the portfolio while IT services and communication equipment round off the next two.

The fund has amassed $1.6 billion in AUM and charges 60 basis points (bps) in fees per year. Volume is solid as it exchanges nearly 372,000 shares in hand per day.

First Trust NASDAQ CEA Cybersecurity ETF CIBR

This ETF has accumulated nearly $734.2 million in its asset base and charges 60 bps in annual fees. It trades in moderate average daily volume of around 199,000 shares. The fund follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cyber security segment of the technology and industrials sectors. In total, the product holds 38 stocks in its basket with Symantec taking the top spot at 6.4% while the other in-focus firm accounts for more than 3% allocation.

Further, it is skewed toward the software industry at 50.7% while communications equipment, aerospace & defense and IT services receives double-digit allocation each.

The First Trust NASDAQ Cybersecurity ETF(Nasdaq:CIBR), ETFMG Prime Cyber Security ETF (HACK) was trading at $35.72 per share on Wednesday morning, up $0.10 (+0.28%). Year-to-date, HACK has gained 12.90%, versus a 1.99% rise in the benchmark S&P 500 index during the same period.

HACK currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #13 of 68 ETFs in the Technology Equities ETFs category.

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