Shares of Amazon AMZN have fallen over 13% since the company reported its Q2 earnings results in late July. Despite broader global and U.S. economic slowdown worries, it’s time for investors to look ahead to the third-quarter earnings season as reports are likely the next catalyst for stocks, with the S&P 500 roughly flat over the last six months.
Today, we take a look at Amazon to see if investors should think about buying shares of the e-commerce giant ahead of its late-October Q3 earnings release.
Recent Economic News & Earnings Overview
All three major U.S. indexes were up over 1.4% through late afternoon trading Friday on the back of a solid jobs report. The U.S. unemployment rate hit 3.5% in September, down from 3.7% in August. This figure marked a 50-year low and clearly provided some optimism after the Institute for Supply Management released some rough economic data earlier this week.
ISM’s nonmanufacturing index came in at 52.6 last month, which represented its lowest level since August 2016. The figure also dropped sharply from August and came out just two days after the firm released its manufacturing index, which slipped to 47.8. This marked its lowest point since June 2009—remember any reading below 50 indicates contraction.
Meanwhile, the latest eurozone manufacturing PMI data fell to its lowest level since 2012. Still, even as geopolitical tensions and global economic slowdown worries mount, the current interest rate environment will likely have traders and Wall Street looking for returns. And this could put a lot of pressure on companies during Q3 earnings season to impress. Total quarterly earnings for the S&P index are expected to decline -4.7% from the same period last year on +4.3% higher revenues (also read: Big Bank Earnings Preview and Early Q3 2019 Results).
Amazon’s Quick Pitch
Amazon doesn’t need much of an introduction. The company is an e-commerce powerhouse that has been able to expand into more industries, from logistics and shipping to pharmaceuticals, through the success of its high-margin and quickly growing cloud computing business. Amazon Web Services is the largest player in the space, but does face more challengers, including from second-place Microsoft MSFT, Google GOOGL, and others.
On top of that, Amazon Prime has over 100 million users who pay $12.99 per month for retail deals and delivery perks. A Prime membership also gives people access to Prime Video, which includes streaming TV shows, movies, and even some live NFL games. Jeff Bezos’ firm is ready to challenge not only Netflix NFLX but also Disney DIS, Apple AAPL, Comcast CMCSA, and others.
Reports also surfaced earlier this week that Amazon plans to move forward with plans to open a chain of U.S. grocery stores. This is part of its growing brick and mortar push that includes corner market-style Amazon Go locations, book stores, and what it calls 4-Star stores. Plus, Amazon on September 25 unveiled eight new Echo devices, including Echo Buds, which AMZN hopes will compete against Apple’s widely popular AirPods.
As we mentioned, Amazon shares have fallen roughly 13% since it reported its Q2 results on July 25. AMZN stock is now down 5.5% in the last six months and 8.3% over the last 52 weeks. This compares to the S&P 500’s roughly sideways movement and can be blamed, in large part, on its huge Q4 2018 selloff, alongside Facebook FB and much of the market. Amazon stock is still up roughly 75% in the last two years.
However, we can see from the chart above that AMZN stock rests below its 50 and 200-day moving averages. Amazon stock hasn’t stayed below either one of these technical levels for very long over the last two years, except for Q4 2018. Therefore, Amazon stock could be due for a comeback, down 15% from its 52-week highs.
As far as valuation goes, AMZN is trading at 2.7X forward 12-month Zacks sales estimates. This marks a discount against the S&P 500’s 3X, Apple’s 3.8X, and its own two-year median of 2.9X.
Q3 Outlook & Beyond
Looking ahead, our estimates call for Amazon’s quarterly revenue to climb 21.1% from the year-ago period to reach $68.52 billion. This would top last quarter’s 20% sales growth, as well as Q1’s 17% and Q4 '18’s 19.7%. Yet, Q3 '19 looks as though it will mark the continuation of slowing revenue growth compared to the last several years.
Amazon’s full-year fiscal 2019 sales are then projected to pop 19.3% to hit $277.88 billion, with 2020 expected to come in 18.1% higher at $328.29 billion. Once again, these estimates would mark a slowdown compared to Amazon’s roughly 30% top-line growth from 2016 to 2018, but come in near 2015’s 20.2% growth and 2014’s 19.5%.
At the bottom end of the income statement, AMZN’s adjusted quarterly earnings are projected to slip 23.3% to touch $4.41 per share. The company’s fiscal 2019 earnings are projected to climb over 19%, with 2020 expected to surge roughly 35% higher than 2019.
Amazon’s earnings revisions trends have remained unchanged over the last 30 days, to help AMZN stock sit at a Zacks Rank #3 (Hold). And the firm does boast an “A” grade for Growth and “B” for Momentum in our Style Scores system.
Amazon hasn’t officially announced its earnings release date, but our Zacks Earnings Calendar calls for the tech powerhouse to release its Q3 results on Thursday, October 24 (posted Q3 '18 on October 25). In the end, AMZN stock looks like it might be worth taking a bite out given the amount of room it has to run heading into earnings.
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