Wedbush analyst Michael Pachter is out with a favorable report on Amazon.com, Inc. (NASDAQ:AMZN) after the online shopping giant reported second-quarter results, which came in comfortably above Street expectations. Pachter raised his price target for AMZN from $835 to $900, while maintaining an Outperform rating.
Pachter wrote, “After years of uneven profits, Amazon is finally delivering substantial earnings growth. The company’s outsized earnings beats in 1H:16 appear to be a signal that it is focused on growing profits; Amazon Web Services (“AWS”) gross and operating margins have grown as revenues continue to ramp, the mix of Fulfillment by Amazon (“FBA”) and AWS is likely to drive further gross margin expansion, and Prime membership growth has continued unabated. We expect the monthly Prime subscription offering to substantially inflate the number of Prime customers seasonally, particularly around the holidays. Offsetting gross margin expansion, we expect Amazon to materially increase its spending on video content by $500 million/year from an estimated $3 – 3.5 billion in 2016.”
“Given the potential for far more dramatic earnings growth, management’s spending discipline, and the likelihood for continued gross margin expansion, we believe a substantial portion of future revenue growth will translate to substantial EPS growth,” the analyst concluded.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Pachter has a yearly average return of -1.3% and a 49.7% success rate. Pachter has a 26.8% average return when recommending AMZN, and is ranked #3341 out of 4087 analysts.
Out of the 45 analysts polled by TipRanks, 40 rate Amazon stock a Buy, while 5 rate the stock a Hold. With a return potential of 9.2%, the stock’s consensus target price stands at $822.13.