S&P Supports Amazon.com… Pullback an Opportunity? (AMZN)

Amazon.com Inc. (NASDAQ: AMZN) may have found a new friend.  Standard & Poor’s has come out late in the day with a research note with “positive” credit implications for Jeff Bezos and friends.  S&P notes strong performance over the last year despite difficult economic conditions.  Amazon was placed on CreditWatch for its “BBB” investment grade rating with “Positive” implications.  Now that shares have pulled back almost $20.00 from the recent highs, this may be worth a look for investors who have looked for a chance to get into the great online retailer.  The recent pullback will still have many scratching their head over valuations.

It was just this weekend that Andrew Bary of Barron’s discussed “Amazon’s Daunting Challenge” as a stock valuation.  I also recently criticized a call from Jim Cramer for being far too bullish with a $216.00 target on Amazon.  We would also note that Amazon’s 50-day moving average is now only $5.00 away at $121.80, and Amazon has not tested that level since mid-Septembe,r over a month before October earnings when it gapped up from under $95 to $120 and then rose north of $140.00.

S&P said the rating outlook is “based on its robust operations and our expectations for a good holiday season and continued gains over the intermediate term” and this leads to a positive reevaluation of Amazon’s business risk.

Revenue growth was about 20% for the trailing 12 months and margins remain in line with historical levels at 6.7%, while its EBITDA has risen 24.7% while it paid down debt. Debt to EBITDA is 0.4x, and interest coverage is above 20.0x as of its most recent quarter.

As far as at the timing of any upgrade, S&P noted that it will watch Amazon’s performance in the quarter to see if a weak consumer or difficult economic conditions will have any meaningful effect on performance and prospects.

The interesting part about S&P’s “BBB” rating is that the company became investment grade this year.  It was also boosted by Moody’s in this last year.  Many investors, analysts, and market pundits questioned the run-up of late, while others have been cheerleaders.   S&P’s action today won’t be a catalyst for any change on the valuation of Amazon’s stock from us, but a $20 pullback will at least start the reevaluation process here.

Jon C. Ogg