Amazon (AMZN) Girds Loins for a Solid Q3, Gets Late Upgrade from BofA/Merrill (AAPL, GOOG, YHOO, More...)

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Amazon.com (Nasdaq: AMZN) is trading higher ahead of the company's third quarter earnings report, expected out after the market closes today. Shares are up3.5% in morning trading.

The Seattle, WA-based company is expected to report EPS of $0.48 on revs of $7.35 billion for the quarter ended on September 30, 2010. The numbers are a 46% increase in EPS and 46% boost in revenues from estimates calling for an EPS of $0.33 on revs of $5.03 billion for the same quarter last year. Amazon reported EPS of $0.46 on $6.57 billion in revs last quarter, mixed to the consensus EPS of $0.55 and $6.54 billion in revs.

Shares took a ride on the "gain train" through the quarter, along with the broader market, up 41.6% to $157.06 at the end of September. Shares are up 23.5% on the year, and 5.4% since the end of the quarter.

Amazon stock is trading for a forward P/E of 46x FY11 EPS estimates, compared to 19.6x for Google (Nasdaq: GOOG), 15.7x for eBay (Nasdaq: EBAY) and 21.1x for Yahoo! (Nasdaq: YHOO).

Data from Bloomberg shows that 18 analysts have a Buy on the company, 17 have a Hold, and two recommend to Sell. The analyst price target average is $158 with a high of $195 and a low of $135.

Analyst Ratings Through the Quarter
In early July, William Blair upgraded the shares from Market Perform to Outperform.

Also in July, ahead of Q2 earnings, BofA/Merrill Lynch downgraded AMZN from Buy to Neutral, with a price target lowered from $150 to $140, citing marginal concerns. (Oops... They upgraded today)

In August, Kaufman restarted the stock with a Hold and a $135 price target, saying share appreciation may be limited by margin pressure.

September saw moves from Benchmark and J.P. Morgan. First, Benchmark kept their Overweight rating, but boosted their price target from $148 to $165. Benchmark said that Amazon could maintain over 20% top and bottom-line growth into 2011.

J.P. Morgan also held on to their Overweight rating, and increased their price target from $154 to $198.

Summary
With their second quarter earnings release, Amazon guided Q310 revs of $6.9 - $7.6 billion, with operating income seen in the range of $210 - $310 million.

Deutsche Bank thinks that Amazon will provide stronger than expected results for the quarter, aided by strong eCommerce trends, market share gains, and a weaker U.S. dollar. Checks tell DB that textbook and book sales have been exceptionally strong, though they are modeling margins to decline 5.7%. They see Amazon continuing to take market share away from eBay, noting that eBay's core marketplace continues to remain weak. Amazon is also making a strong showing in Germany, despite weaker eCommerce trends in Europe. Key points on the call should be bundling movies via Prime, mobile app store strategy, Kindle outlook, entry into new categories, purchase frequency impact from Prime, and European strategy. DB is forecasting an EPS of $0.48 on $7.24 billion in revs.

Janney sees AMZN reporting an EPS of $0.63 and revs of $7.36 billion. They expect Amazon to gain about 200+ basis points Y/Y in market share, and also sees more gains for Amazon in the U.S. retail sector. Janney is looking for a Q3 margin of 5.1%, down 1.2 percentage points from Q309. Janney has a Buy rating on the shares, with a fair value of $175.

Shares have made some big gains on the year, especially being the world's largest online retailer. Their earnings report can set the tone for many in the retail sector going forward. eBay reported after the market yesterday, posting solid numbers for PayPal (though their auction activities have dropped off) and announcing a fresh $2 billion buyback. That may be an positive indicator, as many analysts expect that Amazon is gaining market share from eBay.

Additionally, BofA/Merrill Lynch upgraded AMZN today ahead of their earnings report, certainly a bullish sign out of the firm. BofA increased their rating from Neutral to Buy, with a price target increase from $176 to $190.

The company was also announced as a partner on Apple (Nasdaq: AAPL) a few weeks ago, and is expected to launch an app store with pricing on par with Apple's iTunes.

Notably, excluding last quarter, Amazon hasn't reported a lower EPS than consensus since the third quarter of 2005.

Amazon.com, Inc. is expected to release their Q310 earnings on Thursday, October 21, 2010, at approximately 4:00pm EDT. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: AAPL , AMZN , EBAY , GOOG , YHOO

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