The Zacks Analyst Blog Highlights: Amazon and Target
Zacks Equity Research
Updated
For Immediate Release
Chicago, IL – March 03, 2016 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Amazon (AMZN) and Target (TGT).
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Here are highlights from Wednesday’s Analyst Blog:
Amazon (AMZN) Gaining Momentum: Should You Buy It?
Amazon (AMZN) stock has gained over 20% in share value since February 9. At the same time, the stock is still down 13.81% year-to-date. In other words, Amazon has had a lot of positivity pushing it forward over the last few weeks, but still trades at a considerable discount relative to its share price at the end of 2015. One can’t help but wonder if this is the right time to hop on the Amazon train.
Long Term Outlook
For people with a long term investment horizon, the current share price will look pretty attractive. These investors want to get in on the current discount relative to AMZN’s all-time highs.
Long term investors will expect shares to significantly surpass the current all-time highs which have been achieved by AMZN shares ($696.44). Amazon stock is trading as a high multiple of its earnings, but this is because the current price reflects the massive growth expectations for the company in the long run.
We are in an age where technology is accelerating. When looking at the rise of virtual reality, sophisticated artificial intelligence , drones, and self-driving cars, one can’t help but marvel over how technology can reshape industries. The same goes for the rise of e-commerce, which has already changed the way many people shop.
E-commerce businesses, also known as e-tailers, are already eating the lunch of brick-and-mortar retailers. It may not be too long until Amazon eats their breakfast, dinner, and dessert as well. Traditional stores like Target (TGT) and Sears are unable to compete with Amazon’s prices.
This is because the costs associated with operating a store, hiring cashiers, managers, and so on, are reflected in the price you pay at the checkout. Labor isn’t cheap, and the cost of keeping a large store up and running isn’t either. Many speculate that the rise of e-commerce will result in the death of brick-and-mortar stores.
If Amazon is able to bring same-day shipping to the masses for most of its products, folks won’t really have a reason to go shopping at stores anymore. If that happens, AMZN will be laughing all the way to the bank.
Short Term Outlook
If you’re looking for quick and easy capital gains in a year or less, I advise you to pause and consider what I have to say before jumping in on the stock right now.
Amazon has been making a lot of progress in reducing costs, which has helped the company to finally turn out a decent EPS last quarter. Unfortunately, its net income (EPS) last quarter failed to meet expectations. AMZN churned out EPS of $1.00 per share, while our Zacks Consensus estimated earnings of $1.61 per share. This represents a 37.89% miss.
After the earnings were released, Amazon shares took a dive until February 9. In that time frame, Amazon shares lost about a fourth (24%) of their value.
Analyst expectations for this quarter are mixed, with five upward and five downward earnings estimate revisions over the last 60 days. If the e-tailer misses earnings expectations when it reports its first quarter earnings at the end of April, shares of AMZN could be trading at a discount relative to the current price they are trading at.
Of course, sentiment could push Amazon stock higher in the short run. When news comes out relating to how Amazon is making its Prime membership more attractive, how it’s planning on expanding into international markets , what moves it is making to reduce costs, etc, these will drive the share prices up, regardless of how far off into the future these plans are actually able to come to fruition.
Bottom Line
Amazon is a Zacks Rank #3 (Hold). Refraining from buying shares now seems like a good call in the short term. If you’re looking at the long term and don’t think Amazon shares are going to dip lower, then you may want to purchase the stock now.
Amazon has grown revenues at a good pace for many years now. The growth in the e-commerce industry is evident. However, its full potential has not been realized just yet. This means that Amazon’s potential has yet to be realized as well, since it is the #1 player in this booming industry.
Investors are betting on this right now. If Amazon can prove to be efficient at reducing costs while keeping up with its ability to grow revenues, the company will be on the right track to move forward to new all-time highs.
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