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Is Amazon Positioned to Beat Estimates in Q3 After a 50% YTD Surge?

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Amazon (NASDAQ: AMZN) is set to release its fiscal Q3 2023 results on Thursday, October 26, 2023. After surpassing street expectations in the last quarter, with net revenues increasing by 11% to $134.4 billion, the company is expected to continue this trend. Revenues in North America rose by 11%, International increased by 10%, and Amazon web services segments experienced a 12% growth. With an analysis indicating positive signs, Amazon is likely to beat earnings and revenue consensus estimates. But considering the recent decline in AMZN stock amidst market volatility, will this success continue in the near future?

Despite a decline of 25% from early January 2021 to now, the stock has seen a burst of returns – 2% in 2021, -50% in 2022, and 51% YTD in 2023. In comparison, the S&P 500 has had returns of 27% in 2021, -19% in 2022, and 10% YTD in 2023. This shows that AMZN has underperformed the S&P 500 in recent years. However, consistently beating the S&P 500 has been challenging for individual stocks, even for established companies like Tesla, Home Depot, and Google. On the other hand, Trefis’ High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year since 2016. So, with a volatile market, the question remains: will Amazon be able to outperform the S&P 500 in the next 12 months?

Projected Revenue Growth and EPS Estimates

Amazon’s revenues grew 10% year-over-year to $261.7 billion in the first two quarters of FY2023. Major revenue categories, including physical stores, third-party seller services, subscription services, advertising services, and AWS, all experienced growth over the same period. The online stores category, which contributes close to 40% of net sales, increased by 2% year-over-year. Overall, Amazon’s revenues are projected to reach $558.35 billion for the full-year 2023. In Q3, Trefis estimates that Amazon’s net revenues will be around $134.59 billion, slightly above the consensus estimate of $133.39 billion.

In terms of earnings per share (EPS), Amazon is expected to exceed the consensus estimate of $0.55. Trefis’ analysis suggests Q3 adjusted EPS of $0.57. The company has seen an increase in adjusted net income from -$5.87 billion to $9.92 billion in the first half of FY2023, primarily due to lower operating expenses as a percentage of revenues and a significant decline in total non-operating expenses. Overall, Amazon is likely to report a revenue per share (RPS) of $55.22 for the full-year 2023.

Valuation and Stock Performance

Based on Trefis’ valuation, Amazon’s stock is estimated to be worth $144 per share, which is 14% above the current market price of around $127. This valuation is determined by using an RPS estimate of $55.22 and a price-to-sales (P/S) multiple of just above 2.5x for fiscal 2023. It’s important to note that P/E multiples are based on the share price at the end of the year and reported (or expected) adjusted earnings for the full year.

When analyzing returns, AMZN has seen a bursty performance. Despite recent declines, it has shown substantial gains in previous years, outperforming the S&P 500 with a total return of 238% since the end of 2016. The S&P 500, in comparison, had a total return of 88% over the same period. Trefis’ Reinforced Value Portfolio, consisting of 30 stocks, has also outperformed the S&P 500 with a total return of 514%. These figures highlight the perplexity and burstiness of the stock market.

Conclusion

As Amazon prepares to release its Q3 2023 results, all eyes are on its ability to beat estimates and continue its upward trend. While recent declines have raised concerns, the company’s strong performance in previous years and the projected growth in revenues and EPS provide reason for optimism. With an estimated valuation above the current market price and a history of delivering solid returns, Amazon remains an attractive investment option.

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