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ETFs to Buy as Amazon Looks Set for Q3 Earnings Beat
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Amazon (AMZN - Free Report) is set to release its third-quarter fiscal 2016 results on October 27 after the market close. Being a market leader in online e-commerce, it is worth taking a look at the company’s fundamentals ahead of its results.
Investors’ should note that Amazon has been on a torrid run over the past six months, locking in gains of more than 23%. The upside is expected to continue as Amazon is poised to beat our earnings estimate given the positive earnings revision trend, which is generally a precursor to an earnings beat, and attractive fundamentals.
Inside Our Methodology
The stock saw solid earnings estimate revision of four cents over the past 30 days for the fiscal fourth quarter. Analysts raising estimates right before earnings—with the most up-to-date information possible—is a pretty good indicator of some favorable trends for AMZN in this report (read: Will Tech ETFs Continue Their Rally in Q3 Earnings?).
In fact, Amazon has a Zacks Rank #1 (Strong Buy) and an Earnings ESP of +10.47%, indicating higher chances of beating estimates this quarter. Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits in an investor’s portfolio. Our research shows that the chance of a positive earnings surprise is as high as 70% for the stocks with this combination.
Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Amazon’s earnings surprise history is also incredible with the company delivering a positive earnings surprise of 90.92% on average in three of the past four quarters. Additionally, the company is expected to report revenue of $32.57 billion, up 28.4% from the year-ago quarter. Solid e-commerce sales and the fast-growing cloud computing business – Amazon Web Services – will continue to fuel growth. Notably, Amazon Prime remains a key revenue growth driver.
Further, the stock boasts a solid industry Rank in the top 17% with a top Growth and Momentum Style Score of A each though a Value Style Score of F looks miserable. According to the analysts polled by Zacks, Amazon has an average target price of $895.63 with more than 90% giving a Strong Buy or a Buy rating ahead of the company’s earnings. This indicates a 7.2% upside to the current price of AMZN (read: Tap Q3 Earnings Growth with These Sector ETFs & Stocks).
What to Watch?
Investors will be keen to know how the crucial holiday shopping season is shaping up for Amazon. Looking at the history, the online ecommerce behemoth always recorded the largest sales and cash flows of the year in the holiday quarter. As a result, Amazon's fourth-quarter guidance will be the major thrust for the share price performance. The optimism surrounding the holiday season could push Amazon share price up even if Q3 results disappoint.
ETFs in Focus
Given that a huge earnings beat might be in cards for Amazon in the upcoming report and upbeat holiday season expectations, investors could definitely focus on ETFs having the largest allocation to the online behemoth. While there are several ETFs in the space having Amazon in their top 10 holdings, we have highlighted six funds that have AMZN as their top firm:
VanEck Vectors Retail ETF (RTH - Free Report) — The fund delivered almost flat returns over the past six months and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Amazon makes up for a huge 17.7% chunk of the assets (read: Should You Buy Retail ETFs for Q4?).
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) — The fund added 0.3% in the same time frame and has a Zacks ETF Rank of 3 with a Medium risk outlook. Amazon accounts for 14.2% share.
iShares U.S. Consumer Services ETF (IYC - Free Report) — It added 0.8% and has a Zacks ETF Rank of 3 with a Medium risk outlook. Here, AMZN takes 11.4% share.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) — This ETF also has a Zacks ETF Rank of 3 with a Medium risk outlook and gained 0.4%. Amazon has 11.4% allocation.
Vanguard Consumer Discretionary ETF (VCR - Free Report) — This product is up 0.3% and has a Zacks ETF Rank of 3 with a Medium risk outlook. AMZN makes up for 11.4% share in the basket (see: all the Consumer Discretionary ETFs here).
First Trust Dow Jones Internet Index (FDN - Free Report) — This fund has risen 19.3% over the past six months and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook. Amazon accounts for 10.4% of the assets.
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ETFs to Buy as Amazon Looks Set for Q3 Earnings Beat
Amazon (AMZN - Free Report) is set to release its third-quarter fiscal 2016 results on October 27 after the market close. Being a market leader in online e-commerce, it is worth taking a look at the company’s fundamentals ahead of its results.
Investors’ should note that Amazon has been on a torrid run over the past six months, locking in gains of more than 23%. The upside is expected to continue as Amazon is poised to beat our earnings estimate given the positive earnings revision trend, which is generally a precursor to an earnings beat, and attractive fundamentals.
Inside Our Methodology
The stock saw solid earnings estimate revision of four cents over the past 30 days for the fiscal fourth quarter. Analysts raising estimates right before earnings—with the most up-to-date information possible—is a pretty good indicator of some favorable trends for AMZN in this report (read: Will Tech ETFs Continue Their Rally in Q3 Earnings?).
In fact, Amazon has a Zacks Rank #1 (Strong Buy) and an Earnings ESP of +10.47%, indicating higher chances of beating estimates this quarter. Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits in an investor’s portfolio. Our research shows that the chance of a positive earnings surprise is as high as 70% for the stocks with this combination.
Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Amazon’s earnings surprise history is also incredible with the company delivering a positive earnings surprise of 90.92% on average in three of the past four quarters. Additionally, the company is expected to report revenue of $32.57 billion, up 28.4% from the year-ago quarter. Solid e-commerce sales and the fast-growing cloud computing business – Amazon Web Services – will continue to fuel growth. Notably, Amazon Prime remains a key revenue growth driver.
Further, the stock boasts a solid industry Rank in the top 17% with a top Growth and Momentum Style Score of A each though a Value Style Score of F looks miserable. According to the analysts polled by Zacks, Amazon has an average target price of $895.63 with more than 90% giving a Strong Buy or a Buy rating ahead of the company’s earnings. This indicates a 7.2% upside to the current price of AMZN (read: Tap Q3 Earnings Growth with These Sector ETFs & Stocks).
What to Watch?
Investors will be keen to know how the crucial holiday shopping season is shaping up for Amazon. Looking at the history, the online ecommerce behemoth always recorded the largest sales and cash flows of the year in the holiday quarter. As a result, Amazon's fourth-quarter guidance will be the major thrust for the share price performance. The optimism surrounding the holiday season could push Amazon share price up even if Q3 results disappoint.
ETFs in Focus
Given that a huge earnings beat might be in cards for Amazon in the upcoming report and upbeat holiday season expectations, investors could definitely focus on ETFs having the largest allocation to the online behemoth. While there are several ETFs in the space having Amazon in their top 10 holdings, we have highlighted six funds that have AMZN as their top firm:
VanEck Vectors Retail ETF (RTH - Free Report) — The fund delivered almost flat returns over the past six months and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Amazon makes up for a huge 17.7% chunk of the assets (read: Should You Buy Retail ETFs for Q4?).
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) — The fund added 0.3% in the same time frame and has a Zacks ETF Rank of 3 with a Medium risk outlook. Amazon accounts for 14.2% share.
iShares U.S. Consumer Services ETF (IYC - Free Report) — It added 0.8% and has a Zacks ETF Rank of 3 with a Medium risk outlook. Here, AMZN takes 11.4% share.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) — This ETF also has a Zacks ETF Rank of 3 with a Medium risk outlook and gained 0.4%. Amazon has 11.4% allocation.
Vanguard Consumer Discretionary ETF (VCR - Free Report) — This product is up 0.3% and has a Zacks ETF Rank of 3 with a Medium risk outlook. AMZN makes up for 11.4% share in the basket (see: all the Consumer Discretionary ETFs here).
First Trust Dow Jones Internet Index (FDN - Free Report) — This fund has risen 19.3% over the past six months and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook. Amazon accounts for 10.4% of the assets.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>