In the old days, companies needed to beat the operating performance metrics and Wall Street would reward them for the achievement. That’s not enough these days — just look at Amazon (AMZN) stock. Investors expect management not only needs to beat revenues and earnings, but they also demand that they guide higher than expected. Otherwise, they sell the stock on the headline. This is what happened to AMZN last night and this afternoon. The e-commerce giant beat on the top and bottom lines, but the fourth-quarter guidance was soft. As such, Amazon’s stock is falling 7% on the headline, but therein lies the opportunity.
Monness analyst Brian White believes the 4Q outlook pullback will prove to be a good buying opportunity and, as such, reiterates a Buy rating on AMZN with a price target of $2,300, which implies an upside of 40% from current levels.
White commented, “Although we expect Amazon to benefit from a strong holiday season this year and the company echoes this view, Amazon’s 4Q:18 revenue outlook is more muted than we expected. However, we expect the advertising momentum to continue and the shift of workloads into the cloud has a long runway of growth. We expect new cloud innovations to be unveiled at AWS re:Invent next month (11/26-30). Moreover, AWS appears well positioned for the $10 billion, ten-year, Joint Enterprise Defense Infrastructure (JEDI) program contract that is in the offing with a single cloud provider expected to be chosen.”
“The tone around profit performance at Amazon was extremely positive with the benefit of a sharp step up in AWS operating margins, strong performance in advertising and continued efficiencies across the company. Once again, AWS delivered the highest revenue growth of the three major business segments, increasing by 46% YoY to $6.68 billion in 3Q:18 and slightly below our estimate of $6.71 billion but with a significant uptick in operating margin to 31.1% (vs. 26.9% in 2Q:18,” the analyst added.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Brian White has a yearly average return of 16.6% and a 64% success rate. White has a 1.7% average return when recommending AMZN, and is ranked #82 out of 4889 analysts.
Most analysts back White’s confident take on the retail titan, as TipRanks analytics showcase AMZN as a Strong Buy. Based on 40 analysts polled in the last 3 months, 39 rate Amazon stock a Buy, while only 1 issues a Hold. The 12-month average price target stands at $2,179, marking a nearly 32% upside from where the stock is currently trading. (See AMZN’s price targets and analyst ratings on TipRanks)