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Should You Buy Amazon ETFs Ahead of Q3 Earnings?

Sweta Killa

Amazon AMZN is set to release third-quarter 2019 results on Oct 24 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 (see: all the Consumer Discretionary ETFs here).

Amazon has shed 11% over the past three months, easily underperforming the industry’s average decline of 3.9%. This might reverse given the positive earnings estimate revision trend, which is generally a precursor to an earnings beat, and attractive fundamentals.



Inside Our Methodology

Amazon has a Zacks Rank #4 (Sell) and an Earnings ESP of +35.13%. Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits. Our research shows that the chance of a positive earnings surprise is as high as 70% for stocks with this combination. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The stock has seen positive earnings estimate revision of five cents over the past 30 days for the third quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator for the stock. However, the Zacks Consensus Estimate represents a substantial year-over-year decline of 22.43% (read: A Look at Consumer ETFs as Confidence Slips).

Amazon’s earnings surprise history is impressive, with a positive earnings surprise of 34.02% on average for the last four quarters. Additionally, the company is expected to report revenue growth of 21.2%. The stock has a Growth Score of A and falls under a top-ranked Zacks industry (top 39%).

According to analysts polled by Zacks, Amazon has an average target price of $2,285, with nearly 96% of the analysts giving a Strong Buy or a Buy rating ahead of the company’s earnings.

 

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote


What to Watch?

Investors will keep a close eye on the update for increasing regulatory scrutiny, as well as Amazon Web Services growth and margins. This is because the online e-commerce behemoth is facing heightened regulatory scrutiny with antitrust officials in the United States and investigations into the company’s business practices from European Union.

In its second-quarter earnings release, the company offered upbeat revenue guidance for the third quarter with estimated growth of 17-24% to $66-$70 billion. Additionally, most analysts believe costs to ramp up one-day shipping and a slowdown in the cloud services business could weigh on profits.
 
ETFs to Buy


Given this, ETFs with the highest allocation to this online behemoth will be in focus ahead of its earnings announcement. These funds are likely to gain if Amazon delivers an earnings beat. We have highlighted seven ETFs that have AMZN as the top firm in their portfolio:

ProShares Online Retail ETF ONLN: Amazon makes up for 24% in the fund’s basket (read: Is Holiday Season Frenzy Fading for Retail ETFs?).   

Fidelity MSCI Consumer Discretionary Index ETF FDIS: It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Amazon makes up for 23.4% in the fund’s basket.

Consumer Discretionary Select Sector SPDR Fund XLY: The fund carries a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Amazon accounts for 21.8% share (read: 6 ETFs to Buy If Mini Trade Deal is Cut).

Vanguard Consumer Discretionary ETF VCR: This ETF has a Zacks ETF Rank #2 with a Medium risk outlook. Amazon has 20.9% allocation.

VanEck Vectors Retail ETF RTH: The fund has a Zacks ETF Rank #3 with a Medium risk outlook. Amazon makes up for 19.4% of the assets (read: Is the Retail Picture Truly Gloomy? ETFs in Focus).

iShares Evolved U.S. Discretionary Spending ETF IEDI: Amazon makes up for 11.6% in the fund’s basket.

iShares U.S. Consumer Services ETF IYC: It carries a Zacks ETF Rank #3 with a Medium risk outlook. Here, AMZN takes 9.8% share.

iShares Global Consumer Discretionary ETF RXI: AMZN accounts for 9.5% share in the basket.

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