Amazon: Zacks’ Bull of the Day Play

Amazon (AMZNAnalyst Report) isn’t priced like a normal stock, and that has a lot to do with the fact that it is not a normal company. There have been a few negative stories of late in the news about the e-commerce giant, but there are a lot of positives as we approach the end of the third quarter. Analysts have recently increased their earnings estimates and that has helped push the stock to a Zacks Rank #1 (Strong Buy) and today it is the Bull of the Day.Recent Analyst Action

I like to think that price targets are not really that important as an analyst can really make that number fit any slot he or she wants. All they have to do is note in the report how they derived the price target and there is no set means of doing so. Often times, they will take an earnings estimate for a future year and then apply a “multiple” for it to reach a nice round number.

The two most recent recommendation changes were both upgrades, as Raymond James moved the stock to Strong Buy from Outperform on August 27. Just before that, and frankly maybe a just a few after the most recent earnings report on July 23, Stifel upgraded the stock to Buy from Hold and slapped a $700 price target on the stock as of July 29.

That $700 number isn’t the highest price target out there, but it matched the number that Credit Suisse placed on the stock the day after 2Q15 earnings. It was quite a move up from $480 and it ranks as the highest price target increase in dollar terms. The biggest bull on Wall Street is Morgan Stanley who increased their price target to $740 from $520 while maintaining an overweight recommendation.

Needless to say, the price targets are pretty lofty so let’s take a look at why they are up so high and how to think about earnings that are just about one month away.

Description

Amazon.com operates as an online retailer and serves developers and enterprises through Amazon Web Services that provides compute, storage, database, analytics, applications. Amazon.com was founded in 1994 and is headquartered in Seattle, Washington.

The Big Driver

Of late, the driving force behind strong earnings from AMZN has been the Amazon Web Services (AWS). Amid dozens of price drops, the company has still be able to push a meaningful portion of those sale dollars to the bottom line.

This quarter will also see the benefit of Prime Day. On July 15, the company held a sale that was billed as being bigger than Black Friday. There were some 34 million orders via Amazon Prime ( a service that offers free 2 day shipping on select items as well as music and video services as well) and the company has noted that Prime members spend more.

Earnings History

The last three quarters have been solid beats of the Zacks Consensus Estimate. That said, AMZN has only topped that mark in 4 of the last seven quarters with every report in the calendar year 2014 saw the stock fall in session following the report. This year has seen a solid reversal of fortune with.

The December 2014 quarter, which was reported in January of this year saw an 87% positive earnings surprise and that helped the stock launch higher by $50.62 per share, a move of 16.6%. That was followed up by a one cent beat in the next quarter which was reported in April. The 7% positive earnings surprise and new data from AWS made Wall Street almost blush as the stock moved higher by $55 or 14% in the session following the report.

Finally the most recent quarter, reported back in July was a huge 226% positive earnings surprise that included the company posting a gain ($0.19) when the Zacks Consensus Estimate was calling for a loss (-$0.15). The stock moved higher by $41.15 the next day, but was up as much as $75 intra-day.

Earnings Estimates

Estimate have been moving higher for AMZN.

The table above show that the current quarter has seen the loss per share move from $0.59 to just $0.12 over the last 90 days. After that, we have the all important fourth quarter, which is huge to retail stocks.

I should also point out that this year and next have seen dramatic increases as well. The question becomes, are expectations built too high for 3Q15?

Last Quarter

I don’t think its a secret that last quarter I was long calls for AMZN. With the Prime Day results fully reflected in this quarter I decided to get long again, this time I got in a little earlier.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Stocks Under $10, an investor service , where he recommends the stocks in the portfolio.

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