Nasdaq AMZN Amazon

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The U.S. Consumer Product Safety Commission (CPSC) has sued Amazon (AMZN), accusing the e-commerce giant of selling products that pose a danger to people.

The CPSC voted 3 - 1 to approve the lawsuit against Amazon. The consumer products safety watchdog wants Amazon to stop the sale of the items it has determined to be hazardous. It also wants the online retailer to recall potentially dangerous products it has sold and fully refund the customers who purchased them. (See Amazon stock charts on TipRanks).

“Today’s vote to file an administrative complaint against Amazon was a huge step forward for this small agency…we must grapple with how to deal with these massive third-party platforms more efficiently, and how best to protect the American consumers who rely on them,” said Robert Adler, the commission’s acting Chairman.

The CPSC has named several specific products that Amazon sells that it says pose the risk of serious injury or death to consumers. These include hair dryers that can electrocute people and carbon monoxide detectors that don’t do their job.

The agency acknowledges that Amazon has already taken some action regarding the hazardous items. However, it says Amazon’s actions are insufficient, hence the decision to sue. The CPSC says deaths, injuries, and damages that arise from faulty consumer products costs the U.S. more than $1 trillion annually.

On July 9, Argus analyst Jim Kelleher reaffirmed a Buy rating on Amazon with a price target of $4,000. Kelleher’s price target suggests 10.16% upside potential. The analyst cited the recent executive changes at Amazon and the Pentagon’s decision to cancel the $10 billion cloud contract it had awarded Microsoft in reiterating the bullish view.

"Amazon.com has begun a new era with Andy Jassy as CEO…Jassy is one of the founding architects of Amazon Web Services, and, as such, has deep experience with what is by far Amazon's most profitable business. A potential downside could emerge if Congressional action forces Amazon to divest its AWS business,” commented Kelleher.

Consensus among analysts is a Strong Buy based on 32 Buys. The average Amazon price target of $4,299.35 implies 18.40% upside potential to current levels.

AMZN scores a “Perfect 10” on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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The Nasdaq ended lower on Thursday, pulled down by Apple, Amazon and other Big Tech companies as a fall in weekly jobless claims data fed investor concerns about a recent inflation spike.

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The stars are aligned up for Amazon.com's (AMZN) stock, which is ready to break a 10-month trading range and rally to new highs: strong sentiment among bloggers and investors is placing the company back on the Wall Street radar, while a leadership change adds to the hype. Meanwhile, strong fundamentals provide a margin of safety to value investors, in case the hype dissipates. (See Amazon stock charts on TipRanks)

Amazon Back on Wall Street's Radar

Amazon's stock has been returning to Wall Street's radar in recent months, as evidenced by several bullish indicators compiled by TipRanks. For example, Blogger Sentiment stands at 96%, well above the sector average of 72%. In addition, bullish News Sentiment stands at 77% in the last seven days. Finally, Hedge Fund activity is up by 660,500 shares in the last quarter.

All in all, Amazon's stock receives a "Perfect 10" on TipRanks Smart Score, which is compiled from 8 unique data sets, including Analyst recommendations, Crowd Wisdom, Hedge Fund Activity, Media Sentiment, and multiple Technical stock factors.

Leadership Change at Amazon

The bullish sentiment for Amazon's stock comes at a time when Amazon is undergoing a leadership transition. On July 5th, Andy Jassy, who ran Amazon's cloud-computing business, replaced Jeff Bezos as president and CEO.

Bezos, still Amazon's biggest shareholder, will maintain his grip over the company he started back in 1995, serving in the role of executive chair.

Amazon's leadership change has fueled speculation on Wall Street that the company will pursue several popular policies to enhance shareholder value, such as splitting its shares to entice small investors. Another possibility is that Amazon would use its cash chest to buy back shares. According to Macrotrends.net, the company's cash on hand has soared from $41.25B in 2017 to $55.021B in 2018 and $84.39B in 2019.

Analysts have been drawing comparisons between Facebook and Apple Inc. (AAPL), which pursued similar policies when corporate insider Tim Cook assumed the company's leadership after its founder Steve Jobs left. As a result, Apple's shares have rallied big time since then, attracting value investors, including Warren Buffett.

Amazon's Fundamentals are Strong

Amazon's return on the Wall Street radar and leadership change is supported and reinforced by solid fundamentals rather than just hype.

First of all, Amazon has three business segments: online retail shopping services, cloud computing services, and streaming services. In all three segments, Amazon enjoys a sustainable competitive advantage through barriers of entry, or "moats," to use Warren Buffet's term.

Additionally, Amazon enjoys economies of scale and networking in the online retail shopping segment, making it hard for other online retailers to match. It also enjoys an early mover advantage and economies of scale in the cloud computing segment, which other competitors strive to match.

Meanwhile, Amazon has developed bundling and lock-in relationships that entice users in the streaming business segment, though it lags behind its major competitor Netflix.

In short, Amazon's positioning for take-off is both a sentimental and fundamental story.

How much higher can its stock go from here? The 31 analysts that followed the stock in the last three months see it trading in the range of $5500--$3,775 over the next 12 months, with the average Amazon price target standing at $4,299.35. That implies a 17.6% upside. Furthermore, Amazon has an analyst rating consensus of Strong Buy, based on 31 analysts offering ratings in the past 3 months.

What Could Go Wrong for Amazon?

Despite all the positive aspects described above, Amazon still has a few risks. One of them is decreasing returns to scale, a situation where corporations become too large to manage and too hard to grow. Wall Street is littered with stories of companies that followed this path, falling from the days of glory to the days of obscurity. In reality, such a scenario is unlikely for Amazon at this point.

Then there's regulatory risk, via the prospect of Washington reigning in the internet giants. That would make it hard for Amazon to monetize its competitive advantage. Then again, this scenario is unlikely, as the Internet giant has the ways and the means to fight and overcome regulations.

Summary and Conclusions

Amazon's shares have plenty of tailwinds that could push it higher shortly. Among them are bullish sentiment among bloggers, news outlets, investors, and hedge fund managers. A change in leadership fuels speculation for stock-holder-friendly initiatives, adding to the hype. Furthermore, the company possesses strong fundamentals that provide value investors a "margin of error," if the hype dissipates in a market correction.

Disclosure: At the time of publication, the author held a position in Amazon.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

U.S. stock indexes fell on Thursday following the latest batch of quarterly corporate earnings reports, while data showed the number of Americans filing new claims for unemployment benefits fell last week as expected.

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U.S. stock indexes were set to open lower on Thursday following the latest batch of quarterly corporate earnings reports, while data showed the number of Americans filing new claims for unemployment benefits fell last week as expected.

As the summer heats up, stimulus checks, the partial or complete reopening of most states, and a significant drop in new jobless claims reported by the Labor Department all make things look more upbeat for mid-2021. Some companies are well-positioned to make the most of America'