Stock Analysis & Ideas

Amazon (AMZN) Stock Is Under the Microscope Ahead of Earnings

After an extended period of outsized gains, it appears the Amazon (AMZN) rally is pausing for a breather. This week, Amazon shares have ended each session in the red.

However, ahead of Amazon’s 2Q earnings next week (Thursday, July 23), Stifel analyst Scott Devitt suggests investors pull the trigger on the e-commerce giant’s stock, as the 5-star analyst expects the rally to resume shortly.

Devitt rates AMZN a Buy along with a $3,300 price target, implying there’s gas in the tank for another 11.5% of gains. (To watch Devitt’s track record, click here)

It’s unlikely Amazon shares will remain in a downtrend for long. With coronavirus cases on the rise again, Amazon will probably reap the rewards from another period of people staying in, whether by choice or due to enforced shelter in place measures.

This is a point picked up by Devitt, who said, “Amazon stands as a primary beneficiary of the shift in consumer shopping behavior stemming from the pandemic. The slower than previously expected re-opening of the economy is positive for Amazon’s competitive positioning versus traditional retail and increases the likelihood recent changes in consumer behavior are permanent.”

Looking ahead to next week’s report, Devitt expects Amazon to report 2Q20 revenue of $80.9 billion, a year-over-year increase of 28% which is in line with the high end of Amazon’s guidance ($75.0 billion -$81.0 billion) and mirrors the Street’s expectations.

Amazon’s attempts to keep up with demand and ensure workers’ safety during the pandemic has resulted in a $4 billion outlay in Q2. Therefore, Devitt expects the extra money spent to have an impact on operating income, which Devitt estimates will be $955 million and is lower than the Street’s call for $1.18 billion.

Mostly, however, the analyst expects focus to home in on Amazon’s outlook for Q3 and how much it intends to spend to support the higher demand and ensure a safe working environment.

“The outlook for 3Q margin may potentially be weaker than current expectations as investment may impact near-term cost structure,” Devitt concluded.

Out on the Street, Amazon remains as popular as ever. 1 Sell and 2 Holds are soundly beaten by 37 Buy calls, all adding up to a Strong Buy consensus rating. That said, following Amazon’s continued surge, there’s only 1.5% of upside left, according to the $2,991.34 average price target. (See Amazon stock analysis on TipRanks)

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