Amazon (AMZN) is scheduled to report results of its second fiscal quarter after the market close on Thursday, July 28, with a conference call scheduled for 5:30 pm ET. What to watch for:

POTENTIAL WARNING FOR AMAZON: Walmart's (WMT) profit guide down on Monday amid expectations for increased markdowns and general merchandise margin pressure in the second half is a "potential warning signal" that raises risk around Amazon's first-party merchandise margins, Morgan Stanley analyst Brian Nowak said in a research note earlier this week. The analyst, who thinks Amazon can take steps to offset some of this pressure, calls discounting "an incremental headwind to monitor" heading into Amazon's second quarter report on Thursday. Nowak has an Overweight rating and $175 price target on Amazon shares.

LACK OF MACRO ENVIRONMENT CLARITY: Credit Suisse analyst Stephen Ju lowered the firm's price target on Amazon.com to $170 from $185 ahead of quarterly results, while keeping an Outperform rating on the shares. The analyst believes the potential remains for ongoing downward consensus revisions amid lack of clarity in the macro environment. Ju also noted that while the company may have received some criticism for overbuilding, from a thematic perspective he points out that Amazon has already paid for COVID-driven acceleration of activity whereas other companies may need to continue to add infrastructure/capacity even as revenue growth decelerates.

On Monday, MKM Partners analyst Rohit Kulkarni also lowered the firm's price target on Amazon.com to $165 from $180 but kept a Buy rating on the shares ahead of the company’s second quarter results. The analyst cited recent events, macro factors, and updated thoughts on the pandemic lapping effect on various company segments, with consensus estimates for the third quarter outlook also looking "quite high." Kulkarni added, however, that while he is turning more cautious on Amazon in the near-term, he is also more bullish on its free cash flow inflection in fiscal 2023 and fiscal 2024.

M&A: Amazon and One Medical (ONEM) announced last week that they have entered into a definitive merger agreement under which Amazon will acquire One Medical, a "human-centered, technology-powered national primary care organization on a mission to make quality care more affordable, accessible, and enjoyable through a seamless combination of in-person, digital, and virtual care services." Amazon will acquire One Medical for $18 per share in an all-cash transaction valued at approximately $3.9B, including One Medical's net debt.

Commenting on the news, Citi analyst Daniel Grosslight said he is "not surprised" that 1Life Healthcare is being acquired, though he is "a bit surprised" that Amazon is the winning bidder. Though the blending of virtual and in-person care is "core to both" 1Life and Amazon Care's strategies, the acquisition of a capitated Medicare provider "is a bit of a head-scratcher" given that Amazon has previously not expressed much interest in taking capitated risk in Medicare, Grosslight told investors. The $18 buyout price is "fair" and while he does not think there should be any anti-trust issues from a fundamental perspective, Grosslight noted that "there seems to be a target" on Amazon's back that will "likely result in increased scrutiny of the deal."

OUTLOOK: During the company's last earnings call, Amazon said it saw second quarter revenue of $116B-$121B, with consensus at $119.1B. Operating income (loss) is expected to be between ($1.0B) and $3.0B, compared with $7.7B in second quarter 2021. This guidance assumes that Prime Day occurs in third quarter 2022 and assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded, Amazon added.

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