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Cybersecurity ETFs Rally on Solid Earnings

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Cyber security stocks have been rallying lately on stronger-than-expected earnings. On a year-to-date basis, the stocks have crushed the broader market. Most of the cybersecurity firms beat the Zacks Consensus Estimate for both earnings and revenues and offered robust guidance.

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:

Cybersecurity Earnings in Focus

Fortinet FTNT posted earnings per share of 59 cents and revenues of $507 million, easily topping the Zacks Consensus Estimate of 51 cents and $496 million, respectively. On a year-over-year basis, earnings increased from 32 cents in the year-ago quarter while revenues were up 22%. The company projects revenues in the range of $465–$475 million and earnings per share of 37-39 cents for the ongoing first quarter. For 2019, it guided revenues in the range of $2.06-$2.10 billion and earnings per share in the range of $2.05-$2.10.

Symantec’s SYMC earnings per share came in at 44 cents, topping the Zacks Consensus Estimate of 39 cents but down from the year-ago quarter figure of 49 cents. Revenues of $1.22 billion grew 0.7% year over year and outpaced the consensus mark of $1.18 billion. For the fourth quarter of fiscal 2019, the company expects revenues in the range of $1.19-$1.22 billion and earnings per share in the range of 37-41 cents. For the full fiscal year, Symantec raised its revenue guidance range from $4.67-$4.79 billion to $4.76-$4.79 billion and EPS guidance from $1.47-$1.57 to $1.57-$1.61 (see: all the Technology ETFs here).

Proofpoint outpaced the Zacks Consensus Estimate by 16 cents for earnings and $6 million for revenues. Earnings per share climbed 37.8% from the year-ago quarter while revenues jumped 35%. For the first quarter, the company expects revenues in the range of $198-$200 million and earnings per share in the range of 31-35 cents. For the full year, Proofpoint expects revenues of $870-$874 million and earnings per share of $1.60-$1.67.

Check Point Software Technologies CHKP posted earnings per share of $1.68 and revenues of $526 million, outpacing the Zacks Consensus Estimate of $1.63 and $517 million, respectively. On year-over-year basis, earnings grew 6% while revenues were up 4%. For the first quarter of 2019, the company expects earnings per share in the range of $1.28-$1.34 and revenues in the $460-$480 million range. It also projects revenues of $1.94-$2.04 billion and earnings per share of $5.85-$6.25.

ETFs in Focus

The string of earnings beat and solid guidance has led cybersecurity ETFs to perform better than the other technology peers. ETFMG Prime Cyber Security ETF HACK has gained 4.2% so far this month while First Trust NASDAQ CEA Cybersecurity ETF CIBR has risen 2.5%. Below we have highlighted them in detail (read: 4 ETF Areas Getting All Love in Valentine Month):

HACK in Focus

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 four firms accounting for around 4% share each. From an industrial look, systems software accounts for nearly 59.5% of the portfolio while communication equipment and IT consulting 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 306,000 shares in hand per day.

CIBR in Focus

This ETF has accumulated nearly $760.3 million in its asset base and charges 60 bps in annual fees. It trades in moderate average daily volume of around 196,000 shares. The fund follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. In total, the product holds 37 stocks in its basket with the in-focus firms accounting for a combined 15.9% share. It is skewed toward the software and IT services industry at 75.1% while aerospace & defense takes the next spot with double-digit allocation (read: ETF Investing 2019: Best Ideas & Trends).

What’s Ahead?

The strong performance is expected to continue with other renowned industry players like CyberArk Software CYBR, Palo Alto Networks Inc. PANW, Splunk Inc. SPLK, Qualys Inc. QLYS and SailPoint Technologies Holdings Inc. SAIL slated to report in the weeks ahead.

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