Amazon.com Inc: Should You Buy AMZN Stock Going Into Q3 Earnings?

  • Amazon.com Inc. is scheduled to report its Q3 2016 earnings on Oct 27, after markets close.
  • Analyst consensus estimates the company to report an EPS of 80 cents per share on revenue of $32.7B.
  • Is Amazon.com stock a buy going into the quarterly earnings report?
AMZN Stock Why Amazon.com Inc. (AMZN) Stock Is A Solid Buy Going Into Q3 Earnings
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Amazon.com Inc. (NSDQ:AMZN) will report its Q3 2016 earnings after markets close on the 27th of October, in the midst of an increasing number of bullish notes coming from Wall Street analysts. Amazon stock has been on a run for the better part of 2016, closing the last trading session at $838.09, marking a 21.63% gain in the year-to-date. With Amazon stock closing in on its all-time high of $847.2, will Q3 earnings be the catalyst sending the stock to newer highs?

Wall Street Is Increasingly Bullish On Amazon Stock

Optimism around Amazon.com stock is clearly rising on Wall Street with half a dozen analysts having issued a $1000 or above price target on the stock in the last month and a half. Goldman Sachs (NYSE:GS) analyst Heath P. Terry was the latest to reiterate his bullish stance on the e-commerce giant, upping his target price on AMZN stock to $1050, from the earlier target of $920, implying a 25% upside from the last closing price.The impact of the recent bullish commentary has been telling on the Wall Street consensus, with the consensus price target on AMZN rising from $880 in September to the current $917. The Wall street consensus implies an upside of 9.5% from the last traded price. 41 analysts, out of a total of 46, rate Amazon stock at "Outperform" or "Buy" with 4 analysts rating the stock at "Hold", while one analyst has a "Sell" rating on the stock. With nearly 90% of analysts bullish on AMZN stock, its hard to miss the growing optimism on Wall Street.

Amazon Q3 2016 Earnings Estimates

Wall Street consensus expects Amazon to report EPS of 80 cents on revenue of $32.7B in revenue for Q3, implying a 63 cents rise in EPS and 28.9% topline growth over Q3 2015. The Estimize community expects Amazon to do slightly better with EPS of $1.00 on a top line of $32.79B, implying a beat on both top line as well as earnings. As per the latest commentary, Goldman Sachs Analyst Heath P. Terry expects the company to trump the street estimates with $33B in revenue and $1.42 B in Operating Income, citing acceleration in AWS performance. Chances of an earnings beat are further strengthened with an earnings whisper calling for an EPS of $0.93, implying a 13 cent earnings beat.

Amazon Earnings History And Post-Earnings Stock Performance

Amazon has beaten analysts' earnings estimates in 3 out of the last 4 quarters, with an average earnings surprise of 23.3% over the last 4 quarterly reports. The post earnings movement in Amazon stock price has perfectly tracked the earnings surprise history, with Amazon stock price rising by an average 5.51% in the trading session following the earnings beats and falling by 7.6% in the trading session following the Q1 2016 earnings miss. Hence, a beat/miss in the upcoming earnings report could well decide the post-earnings movement in Amazon stock price.

Amazon earnings surprise history

Amazon Stock Short Interest Is At All Time High

In recent news, CNBC had reported that Amazon's short interest has hit a record high of $5.3 billion, based on data from S3 partners. The latest jump in the short interest adds to the trend of rising short positions in the stock since August 15. The S3 partners report mentioned that most of the short interest positions had been executed since September, with over $1.8B added to short interest over the last 6 weeks. What's the thesis driving this short interest? According to Ihor Dusaniwsky, head of research at New York-based S3:

They're seeing an overheated stock. There's serious conviction that Amazon is going to pause and reverse course temporarily coming into the end of the year.

AMZN short interest

Well, going into the earnings report, there are two ways to read into the high Short Interest data. One, the rising short positions will drag Amazon stock lower, or a rally in the Amazon stock price could lead to a short squeeze and force the shorts to cover their positions. A short squeeze will, in effect add fuel to a rally. Amazon stock is up 3%+ in the last 5 trading sessions, and given the optimism on Wall Street, it seems plausible that investors are expecting an earnings beat, as indicated by recent upward earnings revisions.

Conclusion

Amazon.com Inc. is expected to report its Q3 2016 earnings on October 27th, after the market close. Based on recent commentary from Wall Street, an earnings beat looks likely in Amazon's upcoming report. Given the history of a post-earnings rally following earnings beats in the last few quarters, Amazon stock looks set for yet another post-earnings rally following the Q3 2016 earnings announcement. A post-earnings rally will likely force a short squeeze, given that short positions are at all time highs. Hence, investors with a good risk appetite should buy into AMZN stock ahead of the Q3 earnings announcement as Amazon stock looks to be setting up for yet another big post-earnings rally.

Also see: Amigobulls latest top technology stock picks.

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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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