Amazon’s Heavy Investments Not a Bad Thing

Amazon.com, Inc. (NASDAQ:AMZN) posted its second-quarter print Thursday after the bell that led investors to grow a bit squeamish, sending shares on a 3% dip in after-hours trading. Loaded investments this quarter led EPS as well as margin guidance to underwhelm expectations. However, from the eyes of top analyst Brian Fitzgerald at Jefferies, not only is there no reason to run, but he sees room to grow more confident on the online auction and e-commerce leader.

Why? Consider that the very source of apprehension stems from the very kind of focused investments that will help spur and bolster growth prospects for this giant. Fitzgerald argues that Amazon still handed in quite robust earnings for the quarter, with revenue outclassing consensus, even if operating income underperformed.

Fitzgerald likewise attributes foreign exchange headwinds as a culprit for the miss, noting, “Margin guidance came in below expectations on unfavorable FX and continued investment in India, fulfillment, digital content, and AWS.” However, the analyst remains bullish in a quarter where Amazon Prime and Amazon Web Services impressed, asserting, “Unit and rev growth accelerated in the qtr on strong Prime membership growth while AWS delivered solid rev growth of 42% Y/Y.”

For the second quarter, Amazon’s net sales rose 25% year-over-year to $37.96 billion, beating the Street’s $37.20 billion. However, GAAP operating income of $628 million shortchanged the Street’s forecast looking for $1.07 billion, and non-GAAP CSOI of $1.85 billion underperformed the Street’s $2.12 billion. GAAP EPS of $0.40 also came up short of the consensus projection calling for $1.41.

For the third quarter, the analyst deems guidance “conservative” on margins, but finds this business “as usual,” believing the outlook factors in a $125 million foreign exchange headwind circling revenue as well as the company’s investment strategy. The Amazon management team calls for net sales to range between $39.3 billion and $41.8 billion (with a midpoint of $40.5 billion), just ahead of consensus of $40.0 billion. Additionally, management sets GAAP operating income expectations between ($400) and $300 million, with ($50) million at the midpoint against the Street’s $931 million.

Ultimately, the weakness in shares is short-term, and for Fitzgerald, this stands as an enticing buying opportunity for investors. The bullish case for Amazon boils down to four key reasons for the analyst, who urges savvy investors to take advantage of the pull-back: “1) AMZN is best positioned to benefit from the secular shift of commerce from offline to online (from ~10% penetration today to 25%-30% longer term) and the Co continues gaining market share by reducing friction for shoppers (offering better selection, product availability and higher service levels); 2) AMZN’s ability to get purchases to consumers fast is a huge differentiator that drives growth in existing and new categories; 3) the global AWS opportunity is a revenue growth engine with corresponding margin accretion to the overall business; 4) int’l opportunities (India, China and other untapped geos) carry huge potential for AMZN.”

Therefore, the analyst reiterates a Buy rating on shares of AMZN while hiking the price target from $1,150 to $1,250, which represents a 22% increase from where the stock is currently trading.

Brian Fitzgerald has a very good TipRanks score with a 79% success rate and a high ranking of #16 out of 4,627 analysts. Fitzgerald yields 23.6% in his yearly returns. When recommending AMZN, Fitzgerald gains 25.9% in average profits on the stock.

TipRanks analytics exhibit AMZN as a Strong Buy. Out of 29 analysts polled by TipRanks in the last 3 months, 27 are bullish on Amazon stock while 2 remain sidelined. With a return potential of 14%, the stock’s consensus target price stands at $1,163.64.

Intel Is No Longer Just a PC Company

Intel Corporation (NASDAQ:INTC) delivered a second-quarter print that has Loop Capital analyst Betsy Van Hees singing the chip maker’s praises in a bullish research note. This is the dawning of a new era for Hees- one where Intel is no longer a simple PC firm any longer, and Hees is increasingly seeing fit to roll the dice in INTC’s favor after an encouraging earnings season.

In reaction, the analyst reiterates a Buy rating on INTC while lifting the price target from $43 to $45, which represents a 27% increase from where the shares last closed. (To watch Hees’ track record, click here.)

For the second quarter, the chip maker yielded $0.72 in pro forma EPS on back of $14,763 million in revenue, outperforming the Street’s EPS expectations as well as the analyst’s projections of $0.68 in EPS and $14.40 billion in revenue- all while hitting the high-end of guidance. Additionally, pro forma OM rose from last quarter’s 26.5% to 28.2%. As the chip maker controls and diminishes expenses, operating expenses waned from last quarter’s $5.43 billion to $5.13 billion, under guidance of $5.2 billion.

For the third quarter, the Intel team guides revenue to $15.7 billion, give or take $500 million, marking a 3% to 10% quarterly rise, trouncing the Street’s projection of $15.33 billion. Pro forma GM outlook has been set to 63%, which the analyst attributes to sinking platform unit costs and an offset from a rise in factory startup expenses. Intel management guides pro forma operating expenses to $5.1 billion amid spending tweaks, and pro forma EPS outlook has been set to $0.80 give or take $0.05, outperforming both the Street and the analyst’s forecast of $0.74. Subsequently, the analyst is taking her forecasts to the midpoint of the guidance ranges: $0.80 in EPS and $15.7 billion in revenue.

The chip maker has bumped up its full-year 2017 revenue outlook again, raising expectations by $1.3 billion to $61.3 billion and taking pro forma EPS from $2.85 to $3.00. This adjusted outlook takes under account $200 million in revenue as well as $0.02 in pro forma EPS, thanks to a forthcoming acquisition of Mobileye, anticipated to close in the third quarter. In reaction, the analyst is following suit, taking her full-year 2017 projections to align with the midpoint of guidance ranges, calling for $3.02 in pro forma EPS and $61.32 billion in revenue.

Overall, the best part of Intel’s triumphant momentum for Hees is an exciting evolution at play. “We were impressed that even though the PC industry is in a secular decline, CCG revenue in Q2 increased 3% QoQ benefiting from ASP strength, LTE ramp, and inventory builds for back-to-school. While bears will likely be disappointed that DCG revenue was just in-line with Street estimates rather than a beat, we view this as a considerable positive showing the strength of INTC’s product portfolio and strong demand from cloud and comms service providers that continues to off-set weakness in the Enterprise end-market. We believe the strong quarterly results and raise to full-year 2017 outlook supports our view that INTC is no longer just a PC company and that the ongoing transformation will drive continued YoY earnings and revenue growth,” contends the analyst.

TipRanks analytics showcase INTC as a Buy. Based on 23 analysts polled by TipRanks in the last 3 months, 10 rate a Buy on Intel stock, 9 maintain a Hold, while 4 issue a Sell on the stock. The 12-month average price target stands at $38.94, marking a 10% upside from where the stock is currently trading.