Tags: Guggenheim | Amazon | Price | Target

Guggenheim to CNBC: Amazon Still a Buy, Gives $950 Price Target

(AP/Kris Tripplaar)

By    |   Friday, 03 February 2017 10:01 AM

Savvy investors would be wise to still buy Amazom.com Inc. stock despite the online giant's disappointing earnings and cautious guidance.

Guggenheim's Robert Drbul told CNBC he put a $950 price target on the stock, which CNBC said is nearly 18 percent higher than where the stock's premarket price Friday.

"We think from the forecast and the future, we still have 20-plus percent growth in '17 and '18 and even higher growth in the AWS piece of it," Drbul told CNBC, referring to Amazon Web Services, the company's profitable cloud computing unit.

Amazon on Thursday reported revenue of $43.74 billion for the fourth quarter, lower than the Thomson Reuters' consensus estimate of $44.68 billion. Amazon Web Services' revenue was $3.536 billion vs.$3.6 billion expected by FactSet.

The Guggenheim managing director and retail analyst acknowledged in Friday's interview that the company's earnings report was a slight disappointment, but he contended that it was no reason to shed Amazon from stock portfolios.

"I think, from our perspective, we would all love to have Amazon's problems with the level of growth that they're seeing," he said. "It was a little bit lighter than we expected, but it really is far from a thesis-changing result," he said.

"The growth has accelerated and remains very healthy," he said. "We expected the North America ... retail component [to be] roughly 28 percent growth. It came in 25 percent growth. International was 24 [percent]. Still a very, very healthy number, but a few points lighter than, really, what had been the trend."

Amazon projected earnings for the current quarter that indicate stepped up spending on warehouses, movies and gadgets will continue this year at the expense of profits.

Operating income in the first quarter will be $250 million to $900 million, which is less than a year earlier even though revenue is forecast to increase as much as 23 percent to $35.8 billion.

“It means they’re going to spend a ton of money,” said Michael Pachter, an analyst at Wedbush Securities. “When you see revenue go up and earnings go down, it spooks people. It’s called negative leverage and the street hates it.”

Meanwhile, Amazon is steamrolling its competitors.

With a current market cap of $390 billion, the Seattle-based retail giant is now worth more than the top eight traditional brick-and-mortar retailers combined, as Credit Suisse analysts led by Eugene Klerk mentioned in a recent note, Yahoo Finance reported.

For the record, that roster includes Best Buy (BBY), Macy’s (M), Target (TGT), JCPenney (JCP), Nordstrom (JWN), Walmart (WMT), Kohl’s (KSS) and Sears (SHLD).

“That’s an impressive, even astonishing feat, no doubt, given Amazon was founded in chief executive Jeff Bezos’ garage in 1994," Yahoo Finance reported.

"But it’s not exactly shocking, given the rapid transition over the last 20 years away from shopping in physical retail stores in lieu of online shopping, where retailers like Amazon can offer lower pricing on products and services because they don’t have to offset the costs of also paying for physical stores," Yahoo Finance reported.

"It also helps that Amazon has invested heavily in building out new warehouses to reduce delivery time of items from weeks and days to hours, in some cases.”

(Newsmax wire services and Reuters and Bloomberg contributed to this report).

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Guggenheim to CNBC: Amazon Still a Buy, Gives $950 Price Target
Guggenheim, Amazon, Price, Target
Friday, 03 February 2017 10:01 AM
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