Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Can Amazon (AMZN) Stock Live Up to the Q2 Hype?


Amazon (AMZN) is slated to report earnings today after market-close, as investors look to see if the e-commerce and tech giant can maintain its momentum. 

Amazon guided for second-quarter revenue between $59.5 to 63.5 billion, representing a growth of 12.5% to 20% since this quarter last year. Analysts consensus calls for $62.5 billion, or 18.1% rise, and $5.58 EPS, which would be a rise of about 10% since last year. Perhaps most importantly will be Amazon’s guidance for the next quarter, as it will encompass the recent two-day Prime Day, which is expected to bring a large haul to the company.

Ahead of the print, Deutsche Bank analyst Lloyd Walmsley reiterates a Buy rating on Amazon stock, while increasing his price target to $2,515 (from $2,315), which implies nearly 25% upside from current levels. (To watch Walmsley’s track record, click here)

Walmsley says Amazon is in a “sweet spot of slightly accelerating revenue and KPIs [key performance indicators],” as margin continues to expand on the heels of “continued efficiency improvements, despite the expensive shift to one-day prime.” The analyst is increasing his estimates towards the high end of guidance, while seeing acceleration in revenue and unit growth in 2Q19, with revenue growth “likely to accelerate again in 3Q.” 

On operating income, the analyst is increasing his estimate to $4.2 billion even as the company invests in one-day Prime shipping. Walmsley says, “the company has clearly signaled that while the investment intensity could increase from 2018 levels, it is not in the ‘build and they will come’ mode, so FC investment should continue to be well below the 2016/2017 period.” 

Looking to the major profit-maker, AWS, Walmsley points out that he is slightly below consensus on revenue ($8.39B vs the Street at $8.48B). The analysts says that in the first quarter, “the q/q $ change in AWS revenue declined YoY to $266M (from $329M in 1Q18) for the first time since 4Q16/1Q17,” which prompts him to think there may be a risk that AWS revenue could come in below the Street. Nevertheless, Walmsley remains “impressed by the breadth and size of enterprises moving earnestly into the public cloud, with some disclosing targets to have 50%+ of their IT workloads in AWS or Azure within a few years.” 

All in all, Amazon stock remains a Wall Street darling. The stock is considered a ‘Strong Buy’ based on recommendations from 30 best performing analysts over the last three months. With a potential return of 14%, the stock’s consensus target price stands at $2,253.62. (See AMZN’s price targets and analyst ratings on TipRanks)

 

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