Heading into Amazon’s (AMZN) second-quarter earnings today after the bell, it feels like the narrative has mostly been written already. All that remains to be seen is how far Amazon’s performance will deviate from the projected outlook.
The Street expects Amazon to deliver a blockbusting topline gain on account of the coronavirus driven tailwinds. However, side by side with the bullish forecasts for strong sales, perceived wisdom dictates that profit margins will likely contract due to COVID related expenses.
Raymond James analyst Aaron Kessler also expects Amazon to deliver, however, the 5-star analyst argues those expectations might already be reflected in the stock’s current price.
Amazon’s well publicized success during the pandemic has also resulted in a market beating performance, with the stock up over 60% year-to-date - outstanding returns for any company, even more so for one already valued at $1.5 trillion.
Kessler estimates Amazon will report total sales of $80.8 billion, up by 27% year-over-year (vs. 26% in 1Q) slightly below the consensus estimate of $81.4 billion and toward the guidance’ high end of between $75-81 billion. The analyst expects GAAP operating income of $1.45 billion while the Street forecasts $1.2 billion and guidance has 1.5 billion as the target.
What else to look out for? Kessler will keep an eye on Amazon’s retail revenue growth outlook for 3Q alongside AWS growth and the metric that has taken center stage during the pandemic - advertising growth.
Furthermore, Kessler will be looking out for operating margins, as the analyst also expects “margins to be impacted by near-term Covid related expenses and mix shift to essential items.”
Kessler concluded, “Overall, we remain positive on Amazon fundamentals and expect upwardly revised estimates. That said, we note that shares are largely discounting solid results with shares trading near peak multiples (EV/NTM GP multiple 38% above average over last 5 years) and as such believe shares may need to consolidate recent share price gains in the near-term.”
To this end, Keesler rates AMZN an Outperform alongside a $2,525 price target. The implication for investors? Downside of 18% from current levels. (To watch Kessler’s track record, click here)
In contrast, the Street’s rating is more in sync with the overall price projection. 2 Hold ratings are trounced by 36 Buys, which coalesce to a Strong Buy consensus rating. According to the analysts, there’s still room for 5.5% upside over the coming months, as indicated by the $3,242.66 average price target. (See Amazon stock analysis on TipRanks)
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