Shares of Amazon (AMZN - Free Report) were down in early morning trading as concerns about rising Treasury yields spilled over from Tuesday while renewed frustration with range-bound indexes weighed on the broader market. Still, Amazon has the potential to restore widespread bullishness when its reports its first quarter fiscal 2018 results on Thursday afternoon.
Led by its enigmatic CEO Jeff Bezos, Amazon never hesitates to spend cash on secret projects or cloak the performance of new initiatives, so predicting exactly what we will see in its earnings report is always a difficult task.
Nevertheless, a variety of key growth catalysts—paired with uniquely strong analyst sentiment and surprising valuation opportunities—make Amazon shares look really attractive heading into its report date. Let’s take a closer look at five key reasons why AMZN might be worth a buy today.
Latest Analyst Outlook
According to our latest Zacks Consensus Estimates, analysts expect Amazon to report adjusted earnings of $1.22 per share and total revenue of $50.2 billion. This bottom-line result would represent a year-over-year decline, but net sales are expected to improve by more than 40%.
Perhaps more encouraging is the fact that Amazon’s earnings outlook has improved recently. Thanks to two recent positive estimate revisions, our consensus projection has moved three cents higher in just the past week. Meanwhile, our Most Accurate Estimate—a measure of only the most-recent analyst estimates—is calling for adjusted earnings of $1.32 per share, roughly 8% higher than the consensus.
Even though it is tough to predict what Amazon will do, it is always a great sign to see Wall Street’s top experts getting more bullish as we approach earnings.
Amazon is hardly a value stock, but based on the company’s forward 12-month earnings outlook, the stock is actually trading at its cheapest level in about six months:
Shares are still quite a bit pricier than the industry average, but if there was ever a time to scoop up AMZN on a valuation dip, now would be it.
Earnings Season Performance
As mentioned, Amazon is often an unpredictable earnings performer, with beats and misses often seeming to come in at the extremes. But despite this reputation, Amazon has actually been able to meet or surpass earnings estimates in eight out of the last 11 quarters, and the stock has performed pretty well during earnings season over this stretch.
We judge the price effect of earnings announcements by comparing the closing price of the stock two days before the report and two days after the report. Over the last 11 reporting periods, AMZN has moved higher in seven of these windows.
Continued AWS Growth
Amazon Web Services is a key profit catalyst for the tech behemoth, with margins in the cloud services business remaining much more favorable than the e-commerce industry. This means that investors are always interested in seeing the latest numbers from AWS when Amazon reports.
To prepare for this, we can turn to our exclusive Zacks Non-Financial Metrics Consensus Estimates. The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.
Based on our latest NFM estimates, we expect Amazon to report total AWS revenues of $5.24 billion, up about 43.2% year over year. This growth rate would be relatively in line with the 44.4% and 41.8% growth the unit has witnessed in the trailing two quarters.
International Revenue Picking Up
We can also use the NFM estimate file to measure what to expect from Amazon’s international business. The e-commerce giant has obviously reigned supreme in North America for years, but many investors rightfully believe that its next phase of growth lies abroad.
Interestingly, our consensus estimates are calling for Amazon to report international revenue of $14.74 billion, which would represent growth of 33.3% from the year-ago period. This expansion outpaces the 29% growth Amazon has witnessed in each of the last two quarters.
Amazon is an important bellwether for both the technology sector and the consumer economy, so its report carries a lot of weight. Luckily, this Zacks Rank #1 (Strong Buy) is sporting the perfect combination of improving analyst outlook, growth, and valuation heading into its report date.
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