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What Lies Ahead for Microsoft ETFs This Earnings Season?

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Microsoft (MSFT - Free Report) is set to release fiscal second-quarter 2020 results on Jan 29 after market close. Being the world's largest software maker, it is worth taking a look at the company’s fundamentals ahead of its results.

The stock has gained 12.5% over the past three months but slightly underperformed the industry, which was up 12.8% in the said time frame. The underperformance could reverse if the software leader beat estimates (read: FAANG ETFs in the Spotlight Ahead of Q4 Earnings).

Inside Our Methodology

Microsoft has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.70%. According to our surprise prediction methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The stock has seen no earnings estimate revision for the fiscal second quarter over the past 60 days. The Zacks Consensus Estimate indicates substantial earnings growth of 20% from the year-ago quarter. Microsoft projects substantial year-over-year revenue growth of 9.92%. Its earnings track is impressive, with the last four-quarter positive earnings surprise being 9.64%, on average. The stock boasts a solid Growth Score of B and belongs to a top-ranked Zacks industry (top 20%).

The Zacks Consensus Estimate for average target price is $172.67 with nearly 96% of the analysts having a Strong Buy or a Buy rating ahead of earnings. This represents nearly 6.4% upside from the current price (see: all the Technology ETFs here).

What to Watch?

Investors’ focus will be on the cloud-computing business, which is witnessing a slowdown. Azure sales grew 59% in the fiscal first quarter, down from 64% growth in the fiscal 2019 fourth quarter.

ETFs in Focus

Given this, ETFs having the highest allocation to this this tech giant will be in focus. These funds could be potential movers if Microsoft surprises the market:

Select Sector SPDR Technology ETF (XLK - Free Report)

This most-popular technology ETF follows the Technology Select Sector Index and has $28.5 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 10.4 million shares a day on average. It holds about 70 securities in its basket, with Microsoft occupying the top position at 19.1%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Low-Cost Tech ETFs for Investors).

iShares Dow Jones US Technology ETF (IYW - Free Report)

This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 156 technology stocks. Of these, Microsoft occupies the second position in the basket with 17% of the assets. The fund has AUM of $5.2 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 106,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Information Technology ETF (VGT - Free Report)

This fund manages about $27.6 billion in its asset base and provides exposure to 324 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with 16% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 511,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: Top-Ranked ETFs, Stocks From Top Sector of the Last Decade).

MSCI Information Technology Index ETF (FTEC - Free Report)

This fund is home to 322 technology stocks with AUM of $3.5 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 15.7% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 287,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Evolved U.S. Technology ETF (IETC - Free Report)

This is an active ETF, having accumulated $24.2 million in its asset base so far. It employs data science techniques to provide exposure to 236 technology stocks. Microsoft is the top firm with 15.5% allocation. IETC trades in a light volume of 8,000 shares and charges 18 bps in annual fees (read: FAANG ETFs in the Spotlight Ahead of Q4 Earnings).

iShares Global Tech ETF (IXN - Free Report)

This product provides broad exposure to technology stocks from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 117 stocks in its basket, Microsoft occupies the second spot with 15.2% share. American firms dominate the fund’s portfolio at 79.5%. The ETF has amassed $3.4 billion in its asset base but trades in a good volume of 75,000 shares a day on average. Expense ratio came in at 0.46%.

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