Amazon (AMZN - Free Report) is set to release first-quarter fiscal 2017 results on April 27 after 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.
Amazon has been on a torrid run so far this year locking in gains of nearly 21%. The trend is expected to continue as Amazon is poised to beat earnings estimates as per the Zacks methodology despite a negative earnings revision trend. In comparison to the Zacks Internet - Commerce industry, Amazon’s shares have underperformed by wide margins year to date (read: What Made Internet ETFs Outperform in the Bull Market).
Inside Our Methodology
Amazon has a Zacks Rank #3 (Hold) and an Earnings ESP of +4.90%, indicating reasonable 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.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Amazon’s earnings surprise history is also solid with the company delivering a positive earnings surprise of 25.68% on average in three of the past four quarters. Additionally, the company is expected to report revenues of $35.40 billion, up 21.52% 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 37% with a top Growth and Momentum Style Score of A each though a Value Style Score of F looks miserable.
However, the stock saw negative earnings estimate revision by a penny over the past seven days for the first quarter to $1.02, which represents a year-over-year decline of 4.28%.
Additionally, the stock was downgraded for the first time in over a year, according to Street Account. Raymond James cut the rating on AMZN to Market Perform from Outperform ahead of the earnings release. Analysts decreasing estimates or downgrading the stock right before earnings is not a good sign (read: Amazon Inks Deal to Acquire Souq.com: 2 ETFs in Focus).
According to the analysts polled by Zacks, Amazon has an average target price of $958.00 with nearly 84% giving a Strong Buy or a Buy rating ahead of the company’s earnings. This indicates a 5.6% upside to the current price of AMZN.
What to Watch?
Investors will be closely watching the retail and e-commerce sales and profit margin numbers. This is especially true as U.S. retail sales dropped for the second consecutive month in March and Amazon is spending aggressively on warehouses, movies and gadgets, which will weigh on its profitability (read: 2 ETFs & Stocks to Cheer Up Despite Gloomy March Retail Sales).
ETFs in Focus
Given an earnings beat for Amazon, 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 with a double-digit exposure each:
VanEck Vectors Retail ETF (RTH - Free Report) — The fund has delivered returns of 6.4% so far this year and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. Amazon makes up for a 16.8% chunk of the assets.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) — The fund has climbed 10% in the same time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Amazon accounts for 14.1% share (see: all the Consumer Discretionary ETFs here).
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 has gained 9.9%. Amazon has an 11.5% allocation.
iShares U.S. Consumer Services ETF (IYC - Free Report) — It has added 9% and carries a Zacks ETF Rank of 3 with a Medium risk outlook. Here, AMZN takes 11.4% share (read: How Consumer ETFs Crushed the S&P 500 Bull Market Run).
Vanguard Consumer Discretionary ETF (VCR - Free Report) — This product is up 9.7% and has a Zacks ETF Rank of 2 with a Medium risk outlook. AMZN makes up for 11.4% share in the basket.
iShares Edge MSCI Multifactor Consumer Discretionary ETF –– This fund has risen 4.4% so far this year. Amazon accounts for 11.3% of the assets.
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