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Amazon Stock: Upside and Downside until Q3 Earnings


Oct. 14 2019, Updated 1:29 p.m. ET

Amazon (AMZN) stock has fallen by 13.4% since its second-quarter earnings report on July 25. The fall in Amazon stock has been driven by lower-than-expected earnings, volatile equity markets, political criticism, and antitrust allegations.

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Amazon: Stock performance

Amazon’s second-quarter EPS of $5.22 missed Wall Street analysts’ estimated EPS of $5.57. Plus, the equity market has been volatile since July due to trade tensions between the US and China as well as recession fears. Also, political attacks on issues like tax payments and news like the FTC probe have been hitting Amazon stock.

Now, the tech sector has been gearing up for the earnings season. Wall Street expects Amazon’s Q3 earnings per share to fall 21% YoY to $4.60 in the third quarter.

Amid the weaker expectations, let’s estimate the upside potential and downside risk in Amazon stock until its earnings. AMZN’s stock price forecast will be based on its current implied volatility. The company announced that it plans to hold its third-quarter earnings conference call on October 24.

Amazon: Stock forecast until October 24

Implied volatility in Amazon stock has risen to 27.0%, showing an increase of 2.1 percentage points since July 25. Amazon’s current implied volatility is also higher than its third-quarter average of 24.8%.

Since July 25, Amazon stock has fallen 13.4%. So, Amazon’s implied volatility and stock price have moved inversely since its second-quarter earnings.

Amazon’s stock price could close at $1,644–$1,820 per share in the 13 days ending October 24. This forecast considers Amazon’s implied volatility of 27.0% and assumes a normal distribution of prices using the bell curve model. This forecast assumes a standard deviation of 1.0 with a probability of 68.2%. Amazon stock closed at $1,732 on October 11.

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Amazon’s third-quarter guidance

Amazon forecast its revenues to grow year-over-year by 17%–24% to $66 billion–$70 billion in the third quarter. In the second quarter, Amazon’s revenue rose 20% YoY to $63.4 billion.

However, Amazon forecast its operating earnings to drop from $3.7 billion in Q3 2018 to $2.1 billion–$3.1 billion in Q3 2019. The company considered higher transportation costs in its guidance. In the second quarter, Amazon’s operating income rose 3% to $3.1 billion.

Wall Street’s price target on Amazon stock

Wall Street analysts are confident about Amazon stock despite its lower earnings outlook. All of the 48 Wall Street analysts that cover Amazon stock rate it as a “buy.” Analysts’ mean price target on Amazon stock stands at $2,301, which implies a 33% gain from the current level.

Analysts are positive on Amazon, as they believe the company’s long-term growth drivers are intact. Although Amazon currently faces increased costs and lower earnings, the issue is expected to diminish in the near future. Amazon is fiercely expanding its logistics network to expedite its deliveries, which is causing a rise in transportation costs. We expect its upcoming third-quarter earnings to be hit due to rising transportation costs.

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As soon as the network is fully developed, Amazon should become one of the favored online shopping partners for consumers. The company expects to provide one-day shipments. Once Amazon fully establishes its logistics network, the cost efficiencies would kick in. In the long term, the company’s current subdued performance wouldn’t be a factor.

Amazon’s cloud computing segment, AWS, has seen strong growth and is giving tough competition to Microsoft’s (MSFT) Azure. AWS showed robust performance in its second quarter.

Analysts’ price targets on AMZN’s peers

Microsoft (MSFT) is rated by 34 analysts. Of these, 32 analysts rate it as a “buy,” and the remaining rate it as a “hold.” Analysts’ mean price target on Microsoft stock stands at $157, which implies a 12% upside potential.

Alphabet (GOOGL) (GOOG) is covered by 40 Wall Street analysts. Of these, 36 analysts rate it as a “buy.” The remaining four analysts rate Google as a “hold.” Analysts’ mean price target on Google stock stands at $1,413, which implies a 16% gain from the current level.

Apple (AAPL) is covered by 43 Wall Street analysts. Of these, 24 analysts rate it as a “buy,” 16 analysts rate it as a “hold,” and three analysts rate AAPL as a “sell.” Analysts’ mean price target on Apple stock stands at $230, which implies a 3% loss from the current level.

To learn more, please read AMZN, FB, AAPL, MSFT, GOOGL: Tech Stock Forecasts.


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