AMZN – Amazon is Soaring, But There’s Room to Improve

Fundamentals lag across three of our metrics

   
AMZN – Amazon is Soaring, But There’s Room to Improve
amazon AMZN   Amazon is Soaring, But There's Room to Improve

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Welcome to the Stock of the Day!

The holiday shopping season is always a big deal for Amazon (AMZN), which just announced that it is now delivering packages on Sunday in NYC and L.A.

However, now that consumer goods giant Johnson & Johnson (JNJ) has pulled its products from Amazon over a third-party dispute, can Amazon recover in time for the holidays? Find out today.

Company Profile

We all know Amazon. This is the biggest online retailer out there, where you can buy just about anything you can think of and have it delivered to your home in just a few days.

From its humble beginnings as an online bookseller, Amazon’s current size and status is a testament to its ability to execute. The company has an undying focus on the consumer—and investors are more than happy to stick around for the ride through thick and thin. Last year, the company brought in $61.09 billion in sales, and this year analysts expect total revenues to climb to $74.9 billion.

Earnings Rundown

Amazon reported mixed operating results for the third quarter. While the company reported a loss of 9 cents per share, this was much narrower than the 60 cents per share loss reported in the year ago period. Amazon also met analyst EPS expectations.

Meanwhile, net sales jumped 24% to $17.09 billion. This handily beat analyst expectations of $16.76 billion in sales. The top-line growth clearly outweighed the bottom-line results as AMZN shares gapped up following the announcement and have settled higher in the weeks since the October 24 report.

Looking Ahead

At first glance, Amazon has an exciting few quarters coming up in terms of sales and earnings growth. For the fourth quarter, analysts are calling for 22.4% annual sales growth and 214.3% earnings growth. For Q1 2014, the consensus estimate is 22.3% sales growth and 200% earnings growth.

However, this business with Johnson & Johnson clearly has some analysts rethinking their estimates. In the past seven days, the Q4 consensus EPS estimate has fallen over 4% to 66 cents per share while the Q1 estimate has retreated 3.7% to 54 cents per share. So I’d keep a close eye on analyst earnings revisions to get a better understanding of where Amazon is headed.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. While AMZN started off 2013 at a B-rated buy, it didn’t take long for the online commerce company to slip to a C-rating (in March), then a D-rating (in April). While the stock has since risen to a C-rated hold, that’s not saying much.

On the fundamentals side, there’s a whole lot of room for improvement. Of the eight fundamental metrics I graded this company on, it only excelled in terms of sales growth, operating margin growth and earnings momentum (A- rated).

Meanwhile, Amazon squeaked by with C-ratings for earnings growth and earnings surprises. As for the other three metrics (earnings revisions, cash flow and return on equity), AMZN outright failed with D-ratings. AMZN receives a C for its Quantitative Grade and a C for its Fundamental Grade.

Bottom Line Recommendation:

As of this posting, November 11, I consider AMZN a C-rated Hold

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!


Article printed from InvestorPlace Media, http://investorplace.com/2013/11/amzn-jnj-stock-picks/.

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