Is Amazon stock a buy now that it announced a giant 20-for-1 stock split, its first in more than two decades, along with a $10 billion buyback plan?
The Amazon (AMZN) stock split is due sometime in early June. Amazon said the goal is to make its shares more accessible for retail traders. It also gives employees more flexibility in how they manage their equity, Amazon said in the announcement.
In addition, the $10 billion buyback plan replaces the previous $5 billion plan, of which $2.12 billion in shares have been repurchased.
„The $10 billion share repurchase authorization is a positive indicator for shares, as Amazon began repurchasing shares at the beginning of 2022 for the first time in several years,“ Cowen analyst John Blackledge said in a note to clients. He also said the upsized share buyback authorization could signal that Amazon has already entered the downslope of its historic investment cycle, „potentially leading to improved earnings and cash flow ahead.“
The company has spent $90 billion in capital expenditures in the last two years.
Morgan Stanley analyst Brian Nowak said Amazon’s latest moves constitute „one part in a series of increasingly shareholder-friendly actions.“
Amazon said the additional shares will be awarded at the close of business on May 27 and be reflected in shareholder accounts on or about June 3. Trading is expected to begin on a split-adjusted basis on June 6.
Amazon Fourth-Quarter Earnings Beat Estimates
The stock-split announcement follows the company’s fourth-quarter earnings report on Feb. 3. The company reported adjusted earnings of $27.75 a share, smashing analyst estimates of $3.61, as the company managed to control labor and supply costs better than expected. It also saw gains in its cloud-computing and advertising businesses.
Revenue of $137.4 billion was slightly below estimates of $137.7 billion. Nonetheless, Amazon stock surged 13.5% in reaction.
In addition, said UBS analyst Lloyd Walmsley, „Its first-quarter guidance on both revenue and operating income was much better than feared.“
The e-commerce giant also said net income in the fourth quarter included a pretax valuation gain of $11.8 billion included in nonoperating income from its investment in electric truck maker Rivian Automotive (RIVN).
Amazon Web Services, the company’s cloud computing unit, showed revenue of $17.8 billion. That was up 40% and topping estimates of $17.4 billion.
Plenty Of Growth Opportunities
„Over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron,“ Chief Executive Andy Jassy said in a statement. „Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.“
Amazon also said it would raise the price of its Prime membership service from $119 a year to $139. It cited higher costs related to wages and transportation, as well as continued expansion of benefits under the membership.
Amazon entered 2021 with plenty of big growth opportunities. This included plans to expand its virtual health care program across the U.S. It is also expanding its prescription drug business.
If Amazon can deliver more efficient health care services, the potential is enormous for fueling its growth engine. Health care now comprises nearly a fifth of the U.S. economy.
Amazon is also working on broadly expanding its position in streaming video. That helps to increase the value of its Prime rewards program. This includes the announcement last year that Amazon will acquire the iconic film studio Metro-Goldwyn-Mayer for $8.45 billion. On March 17, Amazon announced the acquisition is now completed. The purchase is Amazon’s largest since buying Whole Foods for $13.7 billion in 2017.
Another growth vehicle for Amazon in 2022 is advertising. When looking for a product, about half of U.S. adults start their search with Amazon. More searches draw more advertisers. And as Covid-19 has caused more consumers to shop online that will keep Amazon’s ad growth humming. Advertising sales in the fourth grew 32% to $9.7 billion.
Technical Analysis Of Amazon Stock
In the stock market, timing is critical. So when you’re looking for stocks to buy or sell, it’s important to do the fundamental and technical analysis that identifies lower-risk entry points that also offer solid potential rewards.
The IBD Stock Checkup tool shows that Amazon stock has a weak IBD Composite Rating of 70 out of 99. When choosing growth stocks for the biggest potential gains based on the CAN SLIM investment paradigm, try to focus on those with a Composite Rating of 90 or higher.
Its Relative Strength Rating is 45. It means that Amazon stock has outperformed 45% of all stocks over the past 12 months. Ideally, look for stocks with a rating of 80 or higher.
While the stock split is a positive indicator for Amazon stock, buying at current levels is a risky proposition and not a good time for now.
Amid the current volatility, it’s an important time to read and follow IBD’s The Big Picture column.
If you’re new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns is one key to the investment guidelines. IBD offers a broad range of growth stock lists, such as Leaderboard and SwingTrader.
Investors also can create watchlists, find companies nearing a buy point, or develop custom screens at IBD MarketSmith.
If you’re interested in buying large-cap stocks, in these articles you’ll find technical analysis of leading large caps to see if they are in or near a proper buy zone.
You’ll also find alerts to warning signs and sell signals that show when to take your profits or cut short any losses. And, you’ll discover if the current stock market trend is conducive to buying stocks, or if it’s an environment where you want to take defensive action and sell.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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