AMZN Stock: Is Amazon Stock A Buy Going Into Amazon.com Inc. Q4 Earnings?

AMZN Stock Is Amazon Stock A Buy Going Into Amazon.com Inc. Q4 Earnings
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Seattle, Washington-based Amazon (NASDAQ:AMZN) is scheduled to report its Q4 2016 earnings on Feb 2, after the bell. Wall street expects the company to report EPS of $1.35 on revenue of $44.67B, implying 35% YoY earnings growth and 25% growth in revenues. AMZN stock is up 10.75% in the year to date, outperforming the 54.3% gains in the Nasdaq Composite (INDEX:COMPX) and 1.9% rise in the S&P 500 (INDEX:SPAL). Will the upcoming earnings report add to the current momentum in the stock? Is Amazon stock a buy ahead of the Q4 earnings report?

Investors Remain Bullish Ahead Of Amazon Q4 Earnings

Amazon.com stock was hammered following the earnings miss in its last quarterly earnings report. AMZN stock price fell 5% in the trading session following the last earnings report. The downtrend continued over the next few trading sessions as the stock lost nearly 100 handles within a fortnight, hitting a 6-month low of $719.1 on Nov 14. AMZN stock has rallied strongly out of the Nov lows, making its way back up to close the last trading session at $830.4, closing in on its all-time high of $847.21, which it hit on October 6. The recent rally indicates that that weak hands exited Amazon stock following the Q3 earnings miss. This is a fact also reflected in investor sentiment, which has risen consistently over the last couple of months.

Amazon investor sentiment

Source: Stocktwits

Will The Strong Holiday Season Drive An Earnings Beat?

A lot of focus will be on the retail segment, as the holiday shopping season-driven Q4 is essentially the strongest quarter for the segment. Amazon had a very strong holiday season, as the e-tailer accounted for over 40% of total online sales through the holiday season. In a recent bullish note, Jefferies analyst Brian Fitzgerald reiterated a buy rating with a $950 price target. The analyst wrote, "We believe AMZN had a very strong holiday season with record number of people trying out Prime – one of the Co’s key rev growth drivers. Data suggest FBA had a strong qtr too. On margins, we don’t expect any negative surprises despite the recent step-up in investment (new fulfillment capacity and digital content)." The record number of people trying out Amazon Prime is a significant bonus for Amazon, not only for this quarter but for many more quarters to come. We believe Prime is a key value driver for Amazon stock.

The Jefferies analyst was not alone in his bullish outlook. Cantor Fitzgerald analyst Youssef Squali expects Amazon to report strong Q4 earnings driven by a solid holiday quarter. The analyst reiterated his overweight rating with a price target of $1000 for AMZN stock. Squali wrote, "We expect a strong performance with ~25%+ Y/Y revenue growth, driven by a growing share of retail, robust 3P and AWS businesses, all amid a strong online holiday season. Our checks indicate a pickup in e-commerce growth in 4Q, with mobile seeing particularly strong growth during peak shopping days (Thanksgiving-Cyber Monday). Given its size, loyal and growing base of Prime members and ever-improving customer value proposition, we view Amazon as one of the prime beneficiaries of such a trend."

Amazon Earnings Estimates

Wall street consensus expects Amazon to report EPS of $1.35 on top line of $44.67B, implying a 35% YoY growth in earnings and 25% YoY growth in revenue. The current earnings whisper number expects Amazon to report Q4 2016 EPS of $1.44, good for a 9 cent earnings surprise, implying a 44% YoY growth in EPS. As covered earlier in the post, strong holiday season sales, continuous innovations in the AWS segment, a greater share of 3P sales in the overall sales mix make a Q4 earnings beat highly probable.

Amazon Earnings History And Post-Earnings AMZN Stock Price Movement

Amazon has a very strong track record of trumping analyst estimates. The company has beaten analyst estimates in 6 out of the last 8 earnings reports. However, the recent record has been mixed, with Amazon topping earnings estimates in only 2 of the last 4 earnings announcements. The company delivered, on average, a 13.7% earnings surprise over the last 4 quarters. The post-earnings movement of AMZN stock has perfectly tracked the earnings beat record over last 4 quarters. In the immediate trading session following the last 4 earnings announcement, Amazon stock gained an average of 5.2% when the company beat/met estimates while an earnings miss was followed by an average 6.4% drop in the stock price. Given the recent price reaction to Amazon earnings announcement, a beat/miss on the Q4 2016 numbers on Feb 2 could well decide the post-earnings movement of Amazon stock price.

Putting It All Together

Amazon is scheduled to report its Q4 2016 earnings on February 2, after the bell. Wall Street analysts expect the company to report earnings of $1.35 on revenue of $44.67B, implying strong YoY growth in topline/earnings. The current earnings whisper anticipates a 9 cent EPS beat. The likelihood of an earnings beat is also supported by recent wall street commentary and also the strong performance of Amazon through the holiday season. Investors who are convinced that Amazon will beat earnings estimates should get into the stock ahead of the earnings, as the stock has demonstrated a strong positive reaction to recent earnings beats. However, Amazon stock also presents a solid long-term investment opportunity supported by explosive revenue/earnings growth, driven by rising Prime memberships and the rapidly growing and highly profitable AWS segment. Therefore, long-term investors should continue to accumulate Amazon stock on any dips, without worrying too much about the short-term impact of an earnings miss/earnings beat. Therefore, long-term investors should look for a partial entry into AMZN stock ahead of earnings in order to benefit from a strong earnings report and use any post-earnings pullback to buy Amazon shares at lower prices in case of an earnings miss. The Amazon growth story remains intact.

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Virendra Singh Chauhan Virendra Singh Chauhan   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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