Story corrected to show Amazon, not Netflix, is rated a buy by TheStreet Ratings
is scheduled to report second-quarter earnings after the market close on Tuesday, and analysts are expecting continued sales momentum for the online retailer.
Analysts are expecting Amazon to report a second-quarter profit of 35 cents a share, compared with 45 cents in the year-ago quarter. Revenue is estimated to increase to $9.4 billion from $6.5 billion a year ago, according to a poll of analysts by Thomson Reuters. Strong Kindle and third-party sales at its flagship Web site are expected to drive the top-line improvements in the quarter.
The following is taken from a first-quarter report published by
, an independent-research unit of
that uses a quantitative model to evaluate stocks.
Amazon's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Amazon increased its bottom line by earning $2.53 versus $2.03 in the prior year. For the next year, the market is expecting a contraction of 5.1% in earnings ($2.40 versus $2.53).
We rate Amazon a buy. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Our model has a price target of $362 on Amazon, offering the potential for 32% upside from current levels.
The company's strengths can be seen in multiple areas, such as its robust revenue growth and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet & Catalog Retail industry and the overall market on the basis of return on equity, Amazon has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
>>For upcoming earnings and estimates, see our
Compared to its closing price of one year ago, AMZN's share price has jumped by 80%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
From a valuation perspective, Amazon's current price-to-earnings ratio indicates a significant premium compared to an average of 72.89 for the Internet & Catalog Retail industry and a significant premium compared to the S&P 500 average of 16.54. For additional comparison, its price-to-book ratio of 13.32 indicates a significant premium versus the S&P 500 average of 2.23 and a discount versus the industry average of 14.41. The price-to-sales ratio is well above the S&P 500 average, but well below the industry average.
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Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser.
Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.