Tuesday, January 18

Amazon’s $ 267 billion destruction this summer puts Wall Street’s love to the test

It’s rare to see almost everyone on Wall Street agree on something, but that’s the case when it comes to Amazon.com.

Every analyst who rates the stock, all 55, recommends that clients buy them, according to Bloomberg data. Active fund managers “are even more overweight” to the name now than they did a year ago, according to a Bank of America report on Aug. 10.


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However, that ubiquitous optimism is being put to the test as last month’s unexpectedly weak sales forecast complicates the company’s growth narrative. In a summer when Amazon co-founder Jeff Bezos took off into space, the company’s stock returned to Earth. The shares have fallen about 15% from a high in early July, erasing about $ 267 billion in value as investors question their prospects on the other side of a pandemic that fueled demand for their services.

The shares fell 0.4% on Thursday. Earlier this week, the stock closed below its 200-day moving average for the first time since June, and is now below where it started the year.

“The market rewards growth and it doesn’t appear that Amazon has any catalyst to increase user spending or attract more users,” said Kim Forrest, founder and chief investment officer of Bokeh Capital Advisors, in an interview on Bloomberg Television.

The company’s informed plan to open several large department store-like locations in the US does not appear to be the news that will turn the stock around. The Wall Street Journal report relied on anonymous people familiar with the matter.

Amazon’s underperformance stands out among US companies valued at more than $ 1 trillion, as well as the market as a whole. Apple, Microsoft Corp and Alphabet all hit records this week, as did the S&P 500 index. Facebook is about 5% below its own record.

The disappointing outlook for the e-commerce company last month came alongside revenue that did not meet estimates for the first quarter from 2018. Analysts have lowered their expectations in the wake of the report. For Amazon’s current quarter, the average earnings estimate has fallen about 16.5% over the past month, according to data compiled by Bloomberg. The revenue consensus is down by nearly $ 6.5 billion, or 5.5%, over the same period.

However, the stock does not yet appear technically oversold, said Chris Verrone, partner and head of macro and technical research at Strategas Research Partners, who believes more caution is required. And the unanimous optimism toward stocks is itself a red flag for him.

“This is the time to be contrary,” he said in a telephone interview. “When all analysts are bullish, it’s hard to live up to those expectations. I think we’ll see downsides until analysts capitulate and start downgrading. ”

Implicit earnings

Of course, the positive consensus on Amazon means that many see the weakness as a buying opportunity. Even as growth slows from pandemic-era levels, analysts see long-term tailwinds for its cloud computing and online retail divisions, along with an increasingly dominant advertising business.

The average price target for analysts implies earnings of around 30%, by far the largest expected advantage among megacaps.

The current level of the stock “represents a sure opportunity,” said Dan Forman, Managing Director and Global Technology Industry Specialist at MKM Partners. He added that the stock had discounted growth concerns and that year-over-year comparisons would become easier after the fourth quarter.

“The stock is trading at a discount to its one, two and five-year averages” based on business value compared to earnings before interest, taxes, depreciation and amortization, he said. “That, for me, is very relevant. I think there is a high probability of stability at these levels. ”

© 2021 Bloomberg


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