Topeka Reaffirms Buy On Amazon Ahead Of Upcoming 2Q14 Earnings Results


In a research note released today, Topeka Capital analyst Victor Anthony reaffirmed a Buy rating on Amazon (AMZN) with a $430 price target, ahead of the upcoming 2Q14 earnings results. The company is scheduled to report the results on Thursday, July 24th after the market close. 

Anthony noted, “We are looking for an in-line quarter on our upwardly revised revenue estimate and CSOI, and 3Q CSOI guidance that suggests continued investment in product innovation, AWS, and investments internationally, particularly China. The shares are off 13% since reaching all-time highs in January of this year on a combination of weaker reported revenues in 4Q13, slowing unit growth, weaker CSOI guidance for 2Q, and the rotation out of momentum stocks. On a P/Sales basis relative to the S&P500 the shares are trading at only an 11% premium to the 4.5yr average. We see opportunity to accumulate shares of a unique Tech asset – a 20% revenue grower, coupled with eventual margin expansion, strong free cash flow growth, and increasing returns on invested capital”.

The analyst added, “Amazon’s shares declined +10% following the last two earnings reports, either on revenue misses (4Q13) or slowing unit growth and weaker guidance (1Q14). In the past, investors appeared comfortable with outperformance on revenue growth. Sentiment today calls for both outperformance on revenues and margins. However, the latter is likely pushed out into 2015 as Amazon continues to invest across AWS and international markets. We believe the bear case of no operating leverage will be proven inaccurate over the next two years as the growth rate of key opex lines moderates. International investments in markets such as Italy and Spain over the past two years should bear fruit through higher international operating margins in 2015. However, we are not convinced that Amazon could succeed in China and we would not be surprised if Amazon were to eventually scale back operations there, leading to a margin benefit”.

According to TipRanks.com, which measures analysts and bloggers success rate based on how their calls perform, analyst Victor Anthony currently has a one-year average return of 18.8% and an 72% success rate. Anthony has a 12.1% average return when recommending AMZN, and is ranked #67 out of 3217 analysts.

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