The technology sector will hog the limelight as we head into the busiest week of the Q2 earnings cycle. We already have results from 128 S&P 500 members or 36.1% of the index’s total market capitalization out (as of July 25).
Per the latest Earnings Outlook, total earnings of the index members that reported results were up 7% year over year on the back of 4.2% higher revenues. Beat ratios are impressive with 77.3% surpassing earnings estimates and 70.3% coming ahead of revenue expectations.
Technology Stocks Continue to Outperform
Technology sector has been contributing significantly to second-quarter earnings. Per the report, total earnings of companies reported in the tech sector, which currently account for 37% of the sector’s total market cap in the index, are up 13.2% from the same period last year on 11.1% higher revenues. Additionally, beat ratios are solid with 90.9% surpassing earnings estimates and 81.8% coming ahead of revenue expectations.
E-commerce is one of the most important components of the technology sector. The online trend continues to gather steam as the younger generation is rapidly adopting fast-advancing technology. Also, improvements in the mobile device segment have been helping online companies to come up with strong numbers.
Here, we take a sneak peek into two major e-commerce providers Amazon (AMZN - Free Report) and Expedia (EXPE - Free Report) that are lined up to report second-quarter earnings results on Jul 27.
Amazon, the world's largest Internet retailer, delivered a positive earnings surprise of 43.69% last quarter. The company outperformed the Zacks Consensus Estimate thrice in the last four quarters, with an average positive surprise of 17.75%.
Per our proven model, a company must have the right combination of a favorable Zacks Rank (Zacks Rank #3 (Hold) or better) and a positive Earnings ESP to pull off beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Earnings ESP for Amazon is +20.29%. This is because the Most Accurate estimate stands at $1.66, while the Zacks Consensus Estimate is pegged at $1.38. However, the company carries a Zacks Rank #5 (Strong Sell). Therefore, we are skeptical of an earnings beat. In fact, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.(Read more: Amazon.com Gears Up for Q2 Earnings: What's in Store?)
Coming to the share price movement, Amazon’s shares have returned only 38.7% year to date, underperforming the industry’s gain of 49.1%.
Expedia, a leading online travel company in the world, however, is likely to beat second-quarter earnings estimates as it has an Earnings ESP of +16.67% and a Zacks Rank #2 (Buy).(Read more:Is a Beat in Store for Expedia this Earnings Season?)
Notably, Expedia’s surprise history hasn’t been that decent. The company beat estimates in one of the trailing four quarters, missed twice and matched on one occasion. It delivered an average positive surprise of 7.1% during that time frame. (You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)
Coming to the share price movement, shares of Expedia have gained 26.72% year to date, significantly outperforming the S&P 500’s 7.94% rally.
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