Can Cloud Computing ETF (SKYY) Surge On Earnings Surprise?

By Zacks Investment ResearchStock MarketsMay 02, 2016 01:41AM ET

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Can Cloud Computing ETF (SKYY) Surge On Earnings Surprise?

By Zacks Investment Research | May 02, 2016 01:41AM ET

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The technology sector is disappointing this earnings season with several bellwethers underperforming. But not all companies, or specifically, all corners of the industry are equally unimpressive. There are stocks like Facebook (NASDAQ:FB) (FB) that have skyrocketed on impressive earnings, while areas like cloud computing look promising (read: Another Blowout Quarter for Facebook: ETFs to Ride On).

Thanks to the zooming ETF industry, we have a unique cloud computing ETF –– First Trust ISE Cloud Computing Index Fund (SKYY). The product comprises top-notch tech giants with considerable presence in the cloud business. Investors should note that Facebook has 4.23% exposure in SKYY. Another holding, Oracle Corp (NYSE:ORCL) (ORCL), which came up with mixed results in March, gets 4.28% focus in SKYY (read: Oracle Beats on Earnings, Ups Buyback: Tech ETFs in Focus).

All these give cues of a strong trend in the space. Investors must be interested in knowing how other stocks might perform throughout the reporting cycle. For them, we have highlighted our earnings prediction of some of the holdings of SKYY (see all Technology ETFs here).
Inside Surprise Prediction

Equinix Inc. ( (NASDAQ:EQIX) ) has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%. Our proven model does not conclusively show that Equinix is likely to beat on earnings since a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen. Also, the Zacks Consensus Estimate for first-quarter 2016 is $3.09, down 23 cents over the past three months. Further, the stock has an unfavorable VGM score of F. The company is expected to report on May 4. EQIX has 4.46% weight in SKYY.

Cisco Systems ( (NASDAQ:CSCO) ) has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. So chances of a beat are slim here again. The company witnessed negative earnings estimate revision of a penny over the past 90 days for the yet-to-be-reported quarter. However, the stock has a better VGM score of “B’. The company will report in mid May. CSCO accounts for 4.26% exposure in SKYY.

salesforce.com inc. ( (NYSE:CRM) ) is expected to release its earnings report in May. It has a Zacks Rank #3 but an Earnings ESP of 0.00%, which makes surprise prediction difficult. There was an upward revision in earnings estimates (by 2 cents) over the past 90 days for the to-be-reported quarter. However, its surprise history is worse with an average miss of 18.75%. Further, the stock has a moderate VGM score of ‘C’. CRM has 3.88% weight in the fund.

Bottom Line

Though the Earnings ESP picture for the upcoming releases does not point to optimism, investors should note that SKYY has a Zacks ETF Rank #2 with a High risk outlook. However, investors should note that the Industry Rank for each of the above-mentioned stocks is within the top 50% segment of the Zacks universe.

As we know, cloud computing is a process by which data or software is stored outside of a computer, but can be easily accessed from anywhere at any time via the Internet. And of late, enterprise cloud computing is rising at a rapid pace.

Industry statistics also bear out the relatively bullish trend. IDC expects global spending on public cloud services to grow at a CAGR of 19.4% from 2015 through 2019. So, if it is not earnings, solid industry fundamentals will likely drive the sector as well as the pure-play ETF.

FT-CLOUD COMPUT (SKYY): ETF Research Reports

EQUINIX INC (EQIX): Free Stock Analysis Report

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

SALESFORCE.COM (CRM): Free Stock Analysis Report

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Can Cloud Computing ETF (SKYY) Surge On Earnings Surprise?

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