Amazon (AMZN - Free Report) is set to release second-quarter fiscal 2017 results on July 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 stellar run this year, having logged gains of nearly 43.7% so far but lagging the industry by wide margins. The trend might stall as Amazon has an unfavorable Zacks Rank and negative earnings revision trend ahead of its Q2 report. However, some fundamentals appear sound, suggesting that some good news might be in store for Amazon in the earnings report.
Inside Our Methodology
Amazon has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of +20.29%. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP makes us confident in predicting an earnings beat. A Zacks Rank #4 or 5 (Sell rated) is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
This is what we have seen for Amazon. The company saw negative earnings estimate revision of 28 cents for the second quarter over the past 90 days. However, the stock witnessed no earnings estimate revision activity over the past 60 days as the Zacks Consensuses Estimate has remained steady at $1.38. The estimate represents a substantial year-over-year decline of 22.2% (read: Tech Face Off: Amazon Versus Alphabet ETFs).
Amazon’s earnings surprise history is also solid with a positive earnings surprise of 17.75% on average for the last four quarters. Additionally, the company is expected to report revenues of $37.21 billion, up 22.4% from the year-ago quarter. Further, the stock boasts a solid Industry Rank in the top 23% with a top Growth Style Score of A though a Value and Momentum Style Score of F each looks miserable.
According to the analysts polled by Zacks, Amazon has an average target price of $1084.67 with nearly 83% giving a Strong Buy or a Buy rating ahead of the company’s earnings. This indicates a 4.3% upside to the current price of AMZN.
Major Expansions in Q2
Amazon was in the headlines in the latter part of Q2 for number of reasons. Among the most notable is that Amazon crossed the $1,000 per share threshold for the first time at the end of May, becoming the fifth company to join the $1,000 club. Then, the company made a push into grocery world by striking an all-cash $13.7 billion deal with the leading natural and organic foods supermarket Whole Foods Market (WFM - Free Report) in early June (read: Amazon's Foray Into Grocery to Hurt/Help These Stocks & ETFs).
The company’s growth spree does not end here. It further introduced Prime Wardrobe, ventured into the home appliance services space, and explored the idea of the meal-kit home delivery business during the second quarter.
What to Watch?
Though the e-commerce giant is expanding in several fields, investors will keenly watch the development in the existing businesses, including core e-commerce as well as cloud computing business – Amazon Web Services that will continue to fuel growth. Notably, Amazon Prime remains a key revenue growth driver (read: Amazon Prime Day Hits Record: 5 Best ETF Deals).
ETFs in Focus
Given this, ETFs having the highest allocation to this online behemoth will be in focus going into its earnings announcement. These funds are potential movers if Amazon surprises the market with an earnings beat. As a result, we have highlighted six funds that have AMZN in their top holding with a double-digit exposure:
VanEck Vectors Retail ETF (RTH - Free Report) — The fund has delivered returns of 7.5% so far this year and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. Amazon makes up for a 19.8% chunk of the assets (read: ETFs to Capitalize on Retail's Pain, Amazon's Gain).
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) — The fund has climbed 12.4% in the same time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Amazon accounts for 15.9% 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 has gained 12.4%. Amazon has 13% allocation.
iShares U.S. Consumer Services ETF (IYC - Free Report) — It has added 10.4% and carries a Zacks ETF Rank of 3 with a Medium risk outlook. Here, AMZN takes 13% share.
iShares Edge MSCI Multifactor Consumer Discretionary ETF (CNDF - Free Report) –– This fund has added 6.2% so far this year. Amazon accounts for 12.8% of the assets (see: all the Consumer Discretionary ETFs here).
Vanguard Consumer Discretionary ETF (VCR - Free Report) — This product is up 12.2% and has a Zacks ETF Rank of 3 with a Medium risk outlook. AMZN makes up for 12.2% share in the basket.
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