Online retailing giant Amazon.com, Inc. (NASDAQ:AMZN) will step up to the podium after the close of trading tomorrow to release its fourth-quarter earnings report, and Wall Street analysts don’t appear to know what to expect.
While the consensus estimate stands at roughly 18 cents per share, analysts’ forecasts range from a loss of about 41 cents to a profit of 56 cents per share. With Amazon missing estimates in the three of the past four quarterly reports, investors will be looking for signs of any positive takeaways.
Digging into the numbers a bit deeper, revenue is expected to rise 16% year-over-year to $29.7 billion for AMZN, while gross margins are seen arriving at 28%. That said, the brokerage community has a bad habit of completely missing Amazon’s gross margin targets, so take these expectations with a grain of salt.
Still, guidance and margins will run neck and neck with Prime membership growth, as Amazon is expected to sport between 40 million and 50 million Prime subscribers following solid growth during the holiday season.
Long-term expectations within the brokerage community remain bullish on Amazon stock, but sentiment has taken a hit over the past year. Currently, 27 of the 44 analysts following AMZN rate the shares a “buy” or better, down from 35 “buys” near the beginning of 2014, with 17 “holds,” and one “sell” rating.
On the other hand, options traders are leaning heavily toward the bearish end of the spectrum for Amazon stock. For instance, AMZN’s January/February put/call open interest ratio arrives at an elevated reading of 1.20, with puts easily outnumbering calls among near-term options.
Furthermore, this ratio is higher than roughly 95% of all such readings taken in the past year. In other words, Amazon stock puts have rarely been more popular among options traders.
Click to EnlargeOverall, implieds for AMZN weekly Jan 30 options are pricing in a potential post-earnings move of about 8%, placing the upper bound near $331.35 and the lower bound near $282.15. Technically speaking, a post-earnings rally could help Amazon stock break out of its longer-term downtrend, pushing shares north of their 200-day moving average.
A selloff, however, would put AMZN back near its 52-week lows with the potential for additional follow-through selling.
2 Trades for AMZN Stock
Call Spread: If you are willing to take a chance and buck the trend in the options pits, Amazon has a good chance of topping a relatively low earnings bar tomorrow. Traders looking to capitalize on a potential earnings-induced rally might want to consider a Feb $310/$330 bull call spread.
At last check, this spread was offered at $8, or $800 per pair of contracts. Breakeven lies at $318, while a maximum profit of $12 is possible if AMZN closes at or above $330 when February options expire.
Put Sell: Alternately, if near-the-money AMZN options are just a bit too pricy for your portfolio, a weekly Jan 30 series $270 put sell might be a way to capitalize on Amazon stock’s technical support. At last check, the weekly Jan $270 put was bid at $1.37, or $137 per contract.
The upside to this put sell strategy is that you keep the premium as long as AMZN closes above $270 when weekly January options expire at the end of this week. The downside is that should AMZN trade below $270 before expiration, you could be assigned 100 shares for each put sold at a cost of $270 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
