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Should You Quit Amazon ETFs Ahead of Q3 Earnings

Amazon AMZN is set to release third-quarter fiscal 2017 results on Oct 26 after market close. Being a market leader in e-commerce, it is worth taking a look at the company’s fundamentals ahead of its results.

Amazon has been on a stellar run this year, having logged gains of nearly 30.1% so far but lagging the industry by wide margins. The stock also underperformed in the past three months, losing 7.3%. The dismal trend is expected to continue given that Amazon has an unfavorable Zacks Rank and a negative earnings revision trend ahead of its Q3 report (read: E-Commerce Face-Off: Wal-Mart Vs. Amazon ETFs).



Inside Our Methodology

Amazon has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -1,339.87%. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP makes us confident in predicting an earnings beat. A Zacks Rank #4 (Sell) or 5 is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

This is what we have seen for Amazon. The company has seen its earnings estimate going down from a penny to a loss of one cent for the third quarter over the past 30 days. The Zacks Consensus Estimate represents a substantial year-over-year decline of 101.1%. Further, Amazon’s earnings surprise history is disappointing, with a negative earnings surprise of 14.14% on average for the last four quarters (read: 6 Reasons to Dump Amazon & Related ETF Strategies).

Moreover, the stock boasts a dismal Industry Rank in the bottom 29% and has a miserable Value Style Score of F. However, a Growth and Momentum Style Score of A each looks good. Additionally, the company is expected to report revenues of $41.97 billion, up 28.3% from the year-ago quarter.

According to the analysts polled by Zacks, Amazon has an average target price of $1,185.05, with nearly 84% rating it either Strong Buy or Buy ahead of its earnings. This indicates a substantial 21.4% upside to the current price of AMZN.

What to Watch?

The impact of the acquisition of Whole Foods Market on Amazon’s revenues and margins will be closely watched this earnings report. As the e-commerce giant is aggressively investing in fulfilling centers, TV shows and movies, Amazon Web Services, and acquisitions, its revenues are expected to get a boost while knocking down the bottom line. Notably, Amazon Prime remains a key revenue growth driver.

ETFs in Focus

Given this, ETFs having the highest allocation to this online behemoth will be in focus going into its earnings announcement. We have highlighted six funds that have AMZN in their top holdings with a double-digit exposure:

VanEck Vectors Retail ETF RTHThe fund has delivered returns of 7.8% so far this year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Amazon makes up for 16.2% of the assets (read: Profit from Retailers' Defaults With These ETFs).

Consumer Discretionary Select Sector SPDR Fund XLYThe fund has climbed 12.8% in the same time frame and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Amazon accounts for 15.0% share.

Fidelity MSCI Consumer Discretionary Index ETF FDISThis ETF also has a Zacks ETF Rank #3 with a Medium risk outlook and has gained 13.6%. Amazon has 12.1% allocation.

iShares U.S. Consumer Services ETF IYC It has added 10% and carries a Zacks ETF Rank #3 with a Medium risk outlook. Here, AMZN takes 12.3% share.

iShares Edge MSCI Multifactor Consumer Discretionary ETF CNDF –– This fund has added 7.4% so far this year and carries a Zacks ETF Rank #3. Amazon accounts for 12.1% of the assets (see: all the Consumer Discretionary ETFs here).

Vanguard Consumer Discretionary ETF VCR This product is up 13.5% and has a Zacks ETF Rank #2 with a Medium risk outlook. AMZN makes up for 12.1% share in the basket.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
VANECK-RETAIL (RTH): ETF Research Reports
 
SPDR-CONS DISCR (XLY): ETF Research Reports
 
VIPERS-CONS DIS (VCR): ETF Research Reports
 
ISHRS-EMS MCD (CNDF): ETF Research Reports
 
FID-CON DIS (FDIS): ETF Research Reports
 
ISHARS-US CN CY (IYC): ETF Research Reports
 
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