Amazon.com, Inc. (AMZN) Whole Foods Wild Card Could Mean an Extra $1.4 Billion in 3Q Earnings; Apple Inc. (AAPL) Innovation Attracts a Bull

Daniel Ives angles for 3Q upside from AMZN tomorrow; Steven Pelayo joins AAPL bulls ahead of FQ4 print.


Amazon Has Honed a “Close to Perfection” Long-Term Strategy

As Amazon.com, Inc. (NASDAQ:AMZN) gears up to deliver its third quarter financial results tomorrow after market close, one analyst is setting bullish expectations on the online auction and e-commerce leader, calling for retail and Amazon Web Services (AWS) to be heavy-hitters for upside.

GBH Insights analyst Daniel Ives expects robust performance “across the board this quarter,” believing the company’s North America retail channel and AWS will outclass expectations. In fact, the analyst sings the praises of AWS as a “pillar of strength” for the company. Based on AWS checks during the third quarter, the analyst notes crucial tailwinds circling Amazon’s “all-important” cloud segment coupled with an AWS value proposition evolution among various enterprises.

Approaching tomorrow’s earnings showcase, the analyst continues to deem the company a “favorite” of tech growth tales into next year, reiterating a Highly Attractive rating on AMZN stock with a valuation target of $1,185, which represents a 21% increase from where the stock is currently trading. (To watch Ives’ track record, click here)

For the third quarter, the analyst projects AWS to rack up 41% year-over-year gains, even going as far as to wager the e-commerce king will outperform his expectations on back of the latest price reductions driving a rise in volume, a surge in customer additions, as well as “balanced strength geographically speaking.” As far as the AWS guide, Ives projects a “slight acceleration” in the growth rate for the fourth quarter from the third quarter, taking under account “the underlying success (especially around new features and price cuts) that we are hearing about from enterprises heading into year-end, with AWS and Microsoft (Azure) leading this ‘two horse race’ in the secular shift to cloud among enterprises globally for 2018 and beyond.”

What will the “biggest wild card” be for Amazon’s third quarter performance? The Whole Foods deal, writes Ives, who notes there will be a particularly heightened near-term focus on how the acquisition will impact Amazon’s margin. Ives ventures Whole Foods will bring an extra $1.4 billion to the company’s third quarter results, with the analyst projecting total revenue for the quarter excluding the asset will amount to $41.5 billion. Moreover, the analyst believes the deal will bring an added operating income of around $65 million to the third quarter print for the company.

Overall, approaching Amazon’s earnings, the analyst roots for a big pay-off from Amazon’s short-term savvy, asserting, “We loudly applaud investing in near-term initiatives around grocery, fulfillment initiatives, Prime, AWS, and other strategic growth areas to drive the trifecta of retail, non-retail (e.g. grocery), and AWS growth globally over the next 3 to 5 years. While we fully expect 4Q margins can come in below Street expectations weighed down by near-term investments, we believe seeing the ‘forest through the trees’ is how most investors will see this earnings as the company invests for the future, a strategy which is worked close to perfection over the last decade with Bezos leading the way. ”

Glancing ahead to the fourth quarter, the analyst sets expectations for $58.4 billion in total revenue, which includes the Whole Foods asset, as well as operating margins expectations of 2.2%, less bullish than the Street. Beyond the print, Ives bets on Amazon’s growth-meets-strategic initiatives to be a catalyst for shares to soar.

Wall Street seems to also see this e-commerce king as a favorite, when noting that TipRanks analytics demonstrate AMZN as a Strong Buy. Out of 32 analysts polled by TipRanks in the last 3 months, 30 are bullish on Amazon stock while 2 remain sidelined. With a return potential of 23%, the stock’s consensus target price stands at $1,201.41.

Apple’s M&A Moves Are Key in an Autonomous Society

Apple Inc. (NASDAQ:AAPL) just gained a bull ahead of its fiscal fourth quarter earnings due in a week’s time, with HSBC analyst Steven Pelayo commending a tech empire whose “‘innovation’ is at the core.”

Noting that late founder Steve Jobs once declared, “Innovation distinguishes between a leader and a follower,” it is clear that Pelayo spotlights a clear leader of the technology pack, compelling the analyst to write a substantial research report highlighting an innovative tech titan forty-years in the making.

Having chatted with peers throughout the tech industry, everywhere from the supply chain to “global thematics and strategy,” the analyst initiates coverage on Apple with a Buy rating on the stock and a price target of $193, which implies a just under 23% increase from current levels. (To watch Pelayo’s track record, click here)

It is no secret from Pelayo’s stance that the iPhone has shot forward as the “biggest piston” in terms of the “Apple engine, representing nearly two-thirds of revenue.” Detailing a bullish history under CEO Tim Cook’s leadership, the analyst likewise looks ahead with confidence into next year “due to a combination of faster unit growth, and more notably, richer product mix.”

By next year, the analyst anticipates the iPhone’s average selling price (ASP) will climb 12% year-over-year, noting that units sold will increase 13% to 247.5 million for the calendar year. “We believe a very large base of loyal, yet patient, users can’t wait to get their hands on iPhone X,” writes the analyst, noting that in a vast-transitioning “autonomous age,” the field of “augmented reality” will serve as a crucial upper hand to the titan.

Pelayo continues to recognize that “society today is on the cusp of the autonomous age – where artificial intelligence takes the stage and embeds itself as central to the future of most businesses and to society’s infrastructure, just as the internet is today.” Additionally, the analyst points to Apple’s patent and merger and acquisition plays in the past eight years that set Apple apart from the rest of its vying competitors, specifically praising ARKit for “instantly” offering the titan the biggest installed base of devices ready to handle AR capabilities.

For a research team that has “published multiple reports on the implications from artificial intelligence, virtual reality, and autonomous vehicles,” Pelayo surmises that Apple’s AR moves matter a great deal, especially “as we view augmented reality as a stepping stone to next-generation virtual and mixed reality applications.”

The Street mostly has bulls backing this tech leader, as TipRanks analytics exhibit AAPL as a Strong Buy. Based on 30 analysts polled by TipRanks in the last 3 months, 23 rate a Buy on Apple stock while 7 maintain a Hold. The 12-month average price target stands at $177.17, marking a 13% upside from where the stock is currently trading.

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