For Immediate Release
Chicago, IL – July 19, 2019 – Zacks Equity Research Shares of Amazon AMZN as the Bull of the Day, Abercrombie & Fitch Co. ANF as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft MSFT.
Here is a synopsis of all three stocks:
Bull of the Day:
Amazon doesn’t need much of an introduction these days and it hasn’t in some time. Nonetheless, it is well worth detailing why the e-commerce and cloud-computing powerhouse appears strong at the moment, especially heading into its second-quarter 2019 earnings release.
The Quick Pitch
Jeff Bezos doesn’t hide his ambitions to expand his one-time online bookstore into more industries to become the Amazon of anything under the sun. Amazon’s size, delivery, and ability to provide customers with increased choice based on price, has forced the likes of Walmart, Target and Kroger to revamp their business models in the digital age. The firm’s Prime users, who pay $12.99 per month for shipping deals, have reportedly swelled to over 100 million, and the company hopes to entice more as it ups its overall speed through a larger logistics push.
Amazon’s reach also includes streaming video, of which it boasts original shows and live sports, including NFL games. The Seattle giant has placed itself firmly in the fight for streaming users and dollars against not only Netflix but soon enough Disney, Apple, and many others. Meanwhile, Amazon’s position as a go-to hub for shopping and entertainment has helped it become the third-largest digital advertiser in the U.S., behind only Google and Facebook.
With that said, Amazon’s growing strength has made it a target of government regulators in Europe and the U.S. On Wednesday, The European Commission announced that it has started a formal probe into the firm’s third-party-seller business. Amazon is, of course, aware of the negative spotlight, which is part of the reason why Bezos in June downplayed the firm’s outsized control of the e-commerce market. Amazon’s CEO said that the firm currently holds roughly 4% of total retail spending in the U.S. and that “third-party sellers are kicking our first-party butt. Badly.”
Bezos proclaimed that third-party sellers have thrived on Amazon compared to rival eBay and now account for 58% of the company’s gross merchandise sales. This is an important distinction because Amazon only makes money from the fees and commissions it charges third-party sellers. And Amazon most likely hopes this higher-margin business continues to expand to help propel its profits, just as its cloud computing AWS unit has over the last several years.
In fact, Amazon’s head start in cloud not only helped it stand out against rivals such as Microsoft, but helped it become the behemoth it is today.
Outlook & Earnings Trends
Looking ahead, our current Zacks Consensus Estimate calls for the company’s Q2 revenue to jump 18.2% to $62.51 billion. This would top Q1’s 17% top-line expansion, but mark a major slowdown from the last serval years.
Despite the slowing revenue growth, which becomes harder as firms expand, it appears that Amazon is ready to report impressive and steady sales growth. The firm’s full-year fiscal 2019 revenue is projected to jump 18.2% to reach $275.3 billion, with 2020 expected to climb nearly 18%, or nearly $50 billion, above our current-year estimate to reach $323.7 billion.
At the bottom end of the income statement, AMZN’s adjusted Q2 earnings are projected to jump from $5.07 in the prior-year quarter to reach $5.29 a share. Meanwhile, the company’s full-year 2019 EPS figure is expected to climb 32%, with 2020 projected to reach $38.27 per share. This would represent a 44% climb above our 2019 estimate.
Amazon has also seen its earnings estimate revision activity trend completely upward across the board in the last seven days. Investors will also notice just how much Amazon’s earnings, adjusted for non-recurring items, have soared recently.
Shares of Amazon have surged roughly 31% so far this year to outpace the S&P 500’s 18% climb. AMZN stock now hovers less than 5% below its 52-week intraday day high of $2,050.50 a share. In terms of valuation, some of Amazon’s metrics are stretched compared to its industry and the market.
But at 60.5X forward 12-month Zacks Consensus EPS estimates, AMZN rests below where it has in the recent past and marks a discount to fellow FAANG power Netflix’s 76.8X. Plus, Amazon’s forward price/sales ratio of 3.3 marks a discount compared to Apple’s 3.5 and continues to represent a deal against the Electronic Commerce Market.
Amazon’s recent upward earnings estimate revision activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment, heading into its Q2 2019 earnings release. The firm is projected to report its second-quarter metrics after the closing bell on Thursday, July 25.
Bear of the Day:
Shares of Abercrombie & Fitch Co. have tanked 35% since the firm reported slower-than-projected sales growth and provided weaker guidance in the first quarter. The retailer has shifted the focus of its marketing campaigns in recent years, but slowing mall traffic and the quickly changing retail environment have hurt Abercrombie and ANF stock.
Overview & Recent Performance
Abercrombie executives blamed its disappointing Q2 2019, in part, on mall traffic, which doesn’t seem like it will pick up any time soon. The company, which also owns Hollister, also said it anticipated promotional pricing in the summer in order to move on from unsold inventory. ANF executives noted last quarter that the firm would close three flagship stores, in Milan, Japan, and New York, as part of an overall trend in retail that has seen firms shutter these massive, often high-rent locations.
Abercrombie still operates over 850 stores around the globe. But ANF, along with the likes of Macy’s, Kohl’s, J.C. Penney and Nordstrom, has had a tough time growing in the Amazon and digital commerce age, where it seems that brands like Lululemon have eclipsed legacy retailers. Meanwhile, Target and Walmart have upped their fashion-focused offerings in recent years
ANF has tried to shift its focus to slightly older consumers and move its marketing away from its shirtless model days. But investors can see that Abercrombie stock was hammered after it failed to live up to its late-2018 and first-half of 2019 hype.
Outlook & Earnings Trends
Looking ahead, our current Zacks Consensus Estimate call for the company’s adjusted second-quarter 2019 earnings to plummet from $0.06 per share in the year-ago period to a loss of -$0.51 a share. Abercrombie last quarter posted a loss of $0.29 per share, which was slightly better than Q1 2018’s loss of $0.56 per share. The company’s Q3 EPS figure is expected to pop 6%, with fiscal 2019’s earnings projected to fall 22.6%—driven by what is expected to be a massive Q2 decline.
Along with its expected downturns in Q2 and 2019, the firm’s earnings estimate revision activity has trended heavily in the wrong direction recently. With that said, ANF has consistently topped our quarterly earnings estimates over the last two years and boasts an average 89% positive surprise over the trailing four periods.
At the top of the income statement, Abercrombie’s Q2 revenue is projected to jump 1.3% to $853.2 million. Peeking further ahead, the company’s fiscal 2019 sales are expected to pop 1.9% to $3.66 billion, with 2020 projected to climb 1.8% higher than our current-year estimate.
Abercrombie is currently a Zacks Rank #5 (Strong Sell), based, in large part, on its earnings estimate revision activity. The company also sports a “C” grade for Value in our Style Scores system and is trading at 16.8X forward 12-month Zacks earnings estimates, which marks a premium compared to its industry’s 12.8X average.
It is worth noting that ANF’s board on June 12 authorized a new share repurchase program to try to help return value to shareholders. With that said, it might be best to stay away from Abercrombie stock until it proves it can sustain any possible comeback.
Microsoft Posts Beat on Strong Azure Numbers
Microsoft put a wrap on its fiscal 2019 earnings reports with a fiscal Q4 post much better than expected on both top and bottom lines. Earnings of $1.31 per share easily topped the $1.21 analysts were expecting on $33.7 billion in quarterly revenues, surpassing the $32.7 billion in the Zacks consensus. This continues a streak of earnings beats that goes back more than four full years.
Microsoft’s intelligent cloud space, Azure, outperformed expectations with $11.4 billion for the quarter, helping what CEO Satya Nadella called a “record full year for Microsoft.” Gross margins came in at 69%, ahead of the 67% anticipated. The company also credited gains in Windows, Office, XBox Live and LinkedIn, to name just a few. Commercial cloud revenue came in up 39% year over year.
Shares are up roughly 1% in late trading, following the Q4 earnings post. Nadella has received lots of credit in the turnaround for Microsoft, bringing it from a strictly software operation to a cloud-sourcing major. Microsoft has enjoyed a 35% gain year to date.
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