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A couple of analysts raised expectations for Amazon days before earnings

Lisa Micheal 14 Jul 22
Jeff Bezos, founder of Amazon and Blue Origin speaks during the JFK Space Summit, celebrating the 50th anniversary of the moon landing, at the John F. Kennedy Library in Boston, June 19, 2019.

Two Wall Street analysts are betting big on Amazon's quarterly report later this week by hiking their price targets on the e-commerce giant.

Deutsche Bank analyst Lloyd Walmsley raised his 12-month price target on Amazon to $2,515 per share from $2,315. Walmsley's new price target implies a 28% upside for Amazon and is one of the five highest among analysts, according to FactSet. KeyBanc Capital Markets analyst Edward Yruma also raised his price target to $2,200 per share from $2,100, implying an upside of nearly 7% from Friday's close.

Shares of Amazon, which reports after the bell on Thursday, closed at $1,964.52 per share on Friday. The stock rose 0.5% in the premarket Monday.

Walmsley and Yruma think Amazon's results will be so good that they don't want to wait until the official report Thursday before setting more bullish targets.

"We see Amazon in a sweet spot of slightly accelerating revenue and KPIs (key performance indicators) with continued (albeit moderate) margin expansion as the company benefits from continued efficiency improvements," Deutsche's Walmsley said in a note Sunday.

Amazon's margins in the first quarter expanded to 7.4% in the first quarter from 3.8% in the year-earlier period. The company also posted earnings per share that blew past analyst expectations.

But there are concerns that Amazon's free one-day Prime delivery could hurt the company's operating income moving forward. Amazon said in April it expects operating profits to range between $2.6 billion and $3.6 billion.

Walmsley thinks, however, that those estimates might be a bit conservative. "Over the past 9 quarters, the company has delivered operating income that is ~130% (median) of the top end of the guide."

Meanwhile, KeyBanc's Yruma says Amazon should post improving numbers in its North American retail business.

"Unlike a soft 1Q for U.S. retail (weather, Easter shift), we believe that the 2Q saw stronger results. Key first look data is indicating a sequential improvement in sales growth at both Amazon.com and Whole Foods," he said.

The analyst added that Amazon Web Services, the company's massive cloud services business, is still "sustaining growth at scale."

"With the revenue run-rate estimated to exceed $33B this quarter, we expect revenue growth to begin moderating below 40% for the first time in five years," Yruma said in a note. "That said, there are few business models at this scale that are still growing 38% y/y. Investor sensitivity on the AWS growth and margin trendline could heighten in 2020 as the multi-cloud narrative with Google Cloud and Microsoft Azure builds. For now, AWS still boasts a cloud infrastructure (IaaS) platform that is larger than its closest two competitors combined."

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