Tuesday, January 26, 2010

Amazon.com (NASDAQ:AMZN): Oppenheimer makes a call to Buy the stock ahead of Q4 results

Oppenheimer is making a positive call on Amazon.com (NASDAQ:AMZN) raising their estimates and target to $160 (prev. $130) ahead of Q409 results after the market close on Thurs., Jan. 28th.

Firm looks favorably upon AMZN shares into the company's upcoming announcement. Sales trends began to recover for AMZN in Q3 (Sep.). Over the past few months and particularly through the holiday selling season, the firm believes that top-line expansion at AMZN accelerated further. Oppenheimer's Q4 sales growth forecast of +39% compares with +28% in Q3. Better sales growth should further leverage an increasingly lean cost infrastructure at the company. AMZN shares tend to perform well upon quarterly EPS from the company. They believe that another "substantially" better than expected AMZN report will encourage investors to rethink the company's earnings power and potentially send shares higher.

Look for Q4 EPS to Easily Top Forecasts. Oppenheimer's new Q4 EPS estimate of $0.85 is up from a prior forecast of $0.67 and compares with a current Street figure of $0.72.

Firm notes they are optimistic that a better than expected Q409 report from AMZN will serve as a positive catalyst for shares. Consider:

1. Shares Off Recent Highs. Since Dec. 2, 2009, shares of Amazon.com are down about 15% versus a decline of 1% in the S&P 500 and 6% in Opco Hardlines Index and now trade modestly lower than the price to which AMZN rallied in the days following the company’s better than expected Q3 report in late Oct.

Firm illustrate in Exhibit below that since AMZN’s Q3 report, shares are up only 2%, in line with the S&P 500. This is largely consistent with the movement in shares ahead of prior quarterly EPS reports for the company.


2. AMZN Typically Performs Well on Reports. Since early 2008 AMZN shares have risen on average 7% following the company’s quarterly earnings reports

3. Valuation Still Subdued. Oppenheimer continues to look upon the valuation at which AMZN trades as favorable. AMZN shares typically maintain a multiple of greater than 40x NTM P/E estimates in periods where sales growth exceeds or is expected to top 20%. They expect AMZN to maintain this growth level through at least FY11. Ahead of the company’s Q4 report that shares trade at a multiple that is about consistent with valuation levels prior to the company’s earlier quarterly earnings reports.

Data Suggests Strengthening Sales at AMZN. Expansion in Personal Consumption Expenditures (PCE) improved to +0.7% in Nov. from -0.7% in Jul. Comp sales trends in the CE category at Best Buy (BBY) accelerated to +8.0% in the third quarter ended Nov. from -2.4% in the fiscal second quarter ended Aug.

Expense Leverage Likely to Persist. AMZN surprised investors with signals of much better cost controls at the company in Q3. Expense leverage should remain a significant driver of EPS upside. Opco believes that improving cost controls reflect structural improvements in the model more than the benefits of a cyclical upturn in sales.

AMZN Story Much More than Kindle. Firm notes they have been encouraged by the initial success of Kindle and expect it to remain a key differentiator for AMZN. Kindle, however, is one of only many drivers for AMZN. They forecast Kindle will add just 2% pts. to sales growth at the company in Q4.

Notablecalls: I think AMZN is one to watch today. The stock is down nicely from the $140's & Opco's estimate and target raise only confirm the obvious - the quarter is going to be BIG.

With 2 days til earnings I think market participants will start thinking of buying some down here. Could easily be a 10-15pt play if AMZN delivers.

The market is a bit of a drag but down here I suspect the red we are seeing is induced by the sell-off we had overnight in Asia. But do note the Asian sell-off was due to S&P cutting Japan's credit outlook to negative. This usually sets the U.S market up for a bounce.

AMZN looks like the weapon of choice to play that bounce.

It's hard to give a target range for the stock here but I think that if they get the bounce going the stock could hit $123-125 in a jiffy.

1 comment:

Coach said...

Valuation "subdued" my ass !

This will be in 90's this spring, or lower, maybe even after earnings.