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Amazon's disappointing 3Q results draw mixed views from Wall Street

Last updated: 09:51 26 Oct 2018 EDT, First published: 09:26 26 Oct 2018 EDT

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Canaccord’s Michael Graham sees the weakness in Amazon’s shares as a buying opportunity

Shares of the retailer Amazon.com Inc (NASDAQ:AMZN) are taking a hammering this morning as analysts and investors have adopted a mixed view of its third-quarter results from last night.

Unveiled late on Thursday, Amazon’s earnings crushed Wall Street’s estimates, but its revenue and fourth-quarter outlook missed the mark and investors pummeled its shares in response, sending them reeling by 8.4% to $1,632 in Friday's morning trade.

Sticking to a Buy rating while cutting their price target on the stock to $2,100 from $2,150, UBS analysts Eric Sheridan and Alexandra Steiger predict Amazon’s stock could trade sideways over the next few months as investors debate a new normal of revenue growth. But despite their price cut, the team at UBS still argues that Amazon is a core holding that offers exposure to growth trends in eCommerce, cloud computing, media consumption, digital advertising & artificial intelligence voice assistants.

Piper Jaffray analyst Michael Olson is also slashing his price target for Amazon shares to $2,050 from $2,100, but keeping an Overweight rating on the retailer. While investors might be disappointed with the retailer’s deceleration in revenue growth, he’s encouraged by the potential for ongoing margin expansion and upside to its bottom line, according to a note to investors, first shared by TheFly.com.

JPMorgan analyst Doug Anmuth also joined the group and lowered Amazon’s stock target to $2,100 from $2,200, but he too still believes its core retail trends are buoyant. “Amazon’s Q4 revenue guide of 10%-20% was lower than expected, but similar to Q3, its underlying growth remains strong,” Anmuth wrote, according to TheFly.com.

READ: Amazon.com reports miss on 3Q revenue as shares tumble

Canaccord’s Michael Graham, meanwhile, sees the weakness in Amazon’s shares as a buying opportunity. He is keeping his Buy rating and a $2,100 price target on its stock.

Stifel analyst Scott Devitt is among the doubters, however, and is lowering his price target on the stock to $2,400 from $2,525, calling Amazon’s lower-operating margin guidance somewhat surprising. But he points out that its fourth-quarter guidance reflects the company’s recent decision to raise its minimum wage to $15 an hour for its US employees. Devitt is sticking to a Buy rating on the stock, citing Amazon’s leading position in the Cloud services and retail sectors and growing margin opportunity, according to TheFly.com.

In other news, RBC Capital analyst Mark Mahaney is bucking the trend and lifting his price target on Amazon to $2,300 from $2,100 on the view that the retailer reported its “highest gross margins” seen in any third-quarter, along with record high operating margins and the biggest operating profit upside in its history.

Jefferies analyst Brent Thill also stands in the optimists’ camp and has raised his price target to $2,300 from $2,260 in the wake of last night’s “strong” third-quarter results. “While revenue came in just shy of consensus, operating income was $1.6 billion ahead of estimates and 6.6% operating margin was the highest in 14 years,” Thill wrote in a note entitled “Every Rockstar Needs a Break”, according to TheFly.com.

Lastly, Wedbush analyst Michael Pachter is also sticking to an Outperform rating and a $2,100 price target on the view that Amazon can deliver sUBStantial earnings over the long term by growing spending more slowly than revenues. “Amazon Web Services, Fulfillment by Amazon and ads should drive steady margin growth, with Prime driving overall retail revenue growth,” Pachter concludes. “In our view, Amazon’s phenomenal rate of profit growth warrants an outsized valuation.”

For the third quarter, Amazon’s earnings per share of $5.75 trounced the consensus estimate of $3.14 while its revenue of $56.6 billion fell short of Wall Street’s projection of $57.10 billion.

Looking ahead, the company’s fourth-quarter revenue guidance of $66.5 billion to $72.5 billion, also misses the bar of $73.79 billion set by analysts.

Contact Ellen Kelleher at ellen@proactiveinvestors.com

 

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