Thursday Morning Reads

Thursday  Morning Reads

Morning Reads:






Prime time

Another strong earnings report is likely on the way from Amazon (NASDAQ:AMZN) amid record profits, surging sales and subscriber growth. Consensus EPS estimates are seen at $9.62 (+92% Y/Y), while revenue expectations are forecast at $104.65B (+38.6% Y/Y). E-commerce has skyrocketed in the U.S. and internationally during the pandemic, while the company's cloud business, Amazon Web Services, remains a top performer. Amazon's ad business, which is lumped into the "other category," is also set to benefit from recent trends in the industry, and has emerged as a growing player in online advertising.

While "shelter in place" benefits may recede over time, Wedbush analyst Michael Pachter expects them to have some "lasting impacts." "We think that new habits learned during the pandemic may be difficult to break for many Prime customers, namely the convenience of grocery shopping," he notes. "We think that SIP accelerated the growth of Amazon Fresh and we expect customers won during the pandemic to remain customers." Pachter has an Outperform rating on the stock and $4,000 target, and values the U.S. grocery market opportunity at $800B.

Other catalysts: Investors will be watching for commentary on the upcoming Prime Day date, as well as updates on Amazon Pharmacy and the CEO transition announced earlier this year.

Stock split? Until the beginning of this week, Amazon shares were up only 5% YTD, the third best-performing component of the closely watched FAANG index (Facebook, Amazon, Apple, Netflix and Google). The advance also trailed the 12% rise of the S&P 500 and 9.5% climb of the Nasdaq Composite. Things have turned around rapidly over the past few days, on word that the company may announce a highly-anticipated stock split. Shares have climbed an additional 5% since Monday, and topped the $3,500 level in premarket trade, as options activity saw Amazon record heavy above average call volumes with about three times as many calls as puts. (20 comments)

Economic headlines

Fed Chair Jay Powell painted a rosy picture of the U.S. economy on Wednesday, but showed no sign that the central bank would change monetary policy anytime soon due to the "uneven and far from complete" recovery. That's good news for investors, who had been watching if the Fed would budge after a series of positive economic reports. "It will take some time before we see substantial further progress," Powell added, choosing not to focus on steps that would be needed to eventually withdraw monetary support.

Bigger picture: Despite the dovish tone, stocks dipped during the post-FOMC meeting news conference as Powell addressed the topic of financial stability. "You are seeing things in the capital markets that are a bit frothy. That's a fact. I won't say it has nothing to do with monetary policy, but it also has a tremendous amount to do with vaccination and reopening of the economy." He also reiterated that any increases in inflation are likely to be transitory and would ease after supply chain issues subside.

Meanwhile, President Biden delivered is his first address to a joint session of Congress on Wednesday night. "America is ready for takeoff," he declared, unveiling his $1.8T "American Families Plan" that would expand the social safety net in the U.S. That comes on top of the $2.3T "American Jobs Plan" proposed in March, as well as the $1.9T "American Rescue Plan" that was passed to combat COVID-19. The new spending measures would be funded through corporate tax hikes and taxing the rich, and while details are still being debated, the stimulus is likely to fuel further economic growth. Stock futures rose overnight, but that was also after Apple (AAPL) and Facebook (FB) lifted sentiment with two sets of bumper earnings (see below).

On tap: Thursday is the busiest day of the earnings season, with roughly 11% of the S&P 500 set to report Q1 results. That includes reports from Caterpillar (CAT) and McDonald's (MCD) before the open, as well as Amazon (AMZN) and Twitter (TWTR) after the close. Don't forget the latest jobless claims data from the Labor Department (expected to be the lowest level since the pandemic) and the first snapshot of Q1 GDP growth (forecast at a whopping 6.1% annualized rate). "It will be a solid GDP number," commented Ryan Sweet, senior economist at Moody's Analytics. "It's one small milestone in many that we have to hit before we can say we have fully recovered from the recession."

(Another) tale of two tech giants

Apple (AAPL) shares climbed 2.5% to $137 after fiscal second-quarter earnings easily topped expectations on top and bottom lines as well as across business units. EPS of $1.40 beats estimates by $0.42, while revenues jumped nearly 54% to $89.6B, well ahead of consensus for $77.3B. The company also declared a dividend hike of 7% (to $0.22/share) and an increase of $90B to an existing share repurchase program (two sources of return closely watched by shareholders).

Breakdown: Apple reported double-digit growth in every single one of its product categories, while its most important product line, the iPhone, was up 65.5% from last year. Its Mac and iPad sales did even better during COVID lockdowns, with its computers up 70.1% and iPad sales growing nearly 79% on an annual basis. Apple didn't issue official guidance for the coming quarter (a trend that started during the pandemic), though it does expect revenue to rise by double digits Y/Y despite some chip shortages. (313 comments)

Shares of Facebook (FB) also joined the rally, soaring 6% following a Q1 report where it blew ahead of financial metrics and delivered user growth in line with expectations. Total revenue rose 48% to $26.2B, while net income skyrocketed 94% to $9.5B. "We had a strong quarter as we helped people stay connected and businesses grow," announced CEO Mark Zuckerberg. "We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas like augmented and virtual reality, commerce, and the creator economy."

Go deeper: Of particular note was Facebook's ad business, where sales were driven by a 30% increase in average price per ad along with a 12% gain in the number of ads delivered. However, the company is bracing for "ad targeting headwinds" due to recent industry changes. Most notably, this includes Apple's recent privacy changes rolled out in iOS 14.5, which makes it more difficult to serve up targeted ads for iPhone and iPad users. (59 comments)

Verizon bet goes sour

Many in the industry were wondering what the company was thinking at the time, but it looks like Verizon (VZ) has finally realized it shouldn't have splurged a combined $9B on AOL and Yahoo. There goes the telecom giant's expensive and unsuccessful bet on digital media...

Flashback: Looking to accumulate a portfolio of once-dominant websites, Verizon shelled out billions of dollars for AOL in 2015 and Yahoo in 2017. It then reorganized the businesses under former AOL CEO Tim Armstrong, calling the combined division "Oath" and signaling its intention to challenge digital advertising powerhouses like Facebook (FB) and Google (GOOGGOOGL). Only a year later, Verizon wrote down about half the value of the digital media business and announced layoffs across the division. The HuffPost news unit was ultimately sold to BuzzFeed, while Tumblr was offloaded for a nominal sum to the owner of WordPress.

Bigger yet, the Oath digital media business failed to reach its target of $10B in annual revenue by 2020. Verizon has also increasingly focused on partnerships with streaming services like Disney+ and Hulu - that can be bundled with its wireless and internet plans - as well as spectrum licenses that will support its ultrafast 5G wireless network. It even recently told investors that capital spending on network equipment and fiber optic cables this year could reach up to $21.5B.

What's next? Verizon is exploring a sale of its media assets, including parts of Yahoo and AOL. The transaction may include private equity firm Apollo Global Management (APO), and lead to a deal worth $4B-$5B, WSJ reports, though other details couldn't be learned. (45 comments)

What else is happening...

Amazon (AMZN) raising pay for more than 500,000 U.S. workers.

UFC parent Endeavor (NYSE:EDR) prices IPO at top of range.

Dogecoin (DOGE-USD) surges as Musk names himself 'Dogefather.'

Again? Boeing (NYSE:BA) halts 737 MAX deliveries due to electrical issues.

Chip shortage... Ford (NYSE:F) expects to lose half of Q2 production.

Samsung (OTC:SSNLF) reports profit jump on smartphone, TV sales.

Will the Biden administration propose a ban on menthol cigarettes?

Report... Lions Gate (NYSE:LGF.A) eyed Showtime (NASDAQ:VIAC) but was rejected.

Shell (RDS.A) raises dividend as commodity prices fuel Q1 beat.

California reports nearly 1,400 COVID-19 cases in fully vaccinated people.

Wednesday's Key Earnings

Apple (NASDAQ:AAPL) +2.5% AH with sales up 54%, hiking dividend/buybacks.
Boeing (BA-2.9% while recovery gained traction, but remained uneven.
Facebook (NASDAQ:FB) +6% AH as ad recovery drove blowout quarter.
Ford (F-3.1% AH expecting to lose half of planned Q2 production.
Qualcomm (NASDAQ:QCOM) +5.3% AH on strong smartphone demand.
Shopify (NYSE:SHOP) +11.4% as GMV doubled in Q1.
Spotify (NYSE:SPOT) -12.3% amid soft MAUs, guidance uncertainties.
Teva Pharma (NYSE:TEVA) -2.4% unlikely to join COVID-19 vaccine production.

Today's Markets

In Asia, Japan closed. Hong Kong +1%. China +0.5%. India +0.1%.
In Europe, at midday, London +0.6%. Paris +0.5%. Frankfurt -0.2%.
Futures at 6:20, Dow +0.5%. S&P +0.7%. Nasdaq +1%. Crude +1.4% to $64.76. Gold flat at $1774. Bitcoin flat at $54459.
Ten-year Treasury Yield +4 bps to 1.66%

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 GDP Q1
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 Fed’s Quarles Speech
2:00 PM Fed’s Williams Speech
4:30 PM Fed Balance Sheet



Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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