Bullish Analyst Duel in Amazon

By Jon C. Ogg Published Jan 13, 10:00AM EST

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Amazon.com Inc. (NASDAQ: AMZN) has a bullish duel taking place in the analyst community on Tuesday. Citigroup raised its rating to Buy from Neutral with a $354 price target. Argus is the competing call, with its Buy rating maintained, but the price target was cut to $400 from $480 in the call.

Citi’s call on Amazon.com comes from analyst Mark May, who talked up Amazon’s attractive valuation, as well as top-line growth and more stable margins. On valuation, May sees a good risk-reward and valuation support near $300, as well as upside to at least $354 without assuming multiple expansion. He also sees online holiday shopping data being good for fourth-quarter results.

Citi’s big call is Amazon’s seemingly never-ending margin pressure. May noted that the company can reverse the recent trend and rise in 2015. The firm does not see the multiple factors that came into play in 2014 to worsen in 2015.

One sidebar comment from 24/7 Wall St.: One note that outsiders would likely agree with and challenge is that Amazon can increase its margins — but Jeff Bezos does not have to and is unlikely to until shareholders demand it.

ALSO READ: Amazon Loses Ground in Customer Service

What the investing community needs to know about the competing call from Joseph Bonner of Argus is that Thomson Reuters has the highest Amazon analyst price target now pegged at $450. That means that the street-high target has come down by almost 20%. Still, Argus remains among the more bullish firms covering Amazon.

Argus noted that Amazon shares have faced pressure due to the failure of the Fire Phone and the much heralded market debut of Chinese e-commerce giant, Alibaba, in 2014. The firm maintained in the call that it does not believe that Amazon’s competitive position has eroded, and it showed that the Kindle platform and Prime membership program continue to grow. Another benefit is that Amazon’s return on capital is improving.

Argus sees growth coming from areas including international expansion, the development of the Kindle, Amazon Web Services, local delivery and Fire TV. Argus said:

Our 2014 GAAP forecast calls for a loss of $0.54 per share and our 2015 earnings per share forecast for EPS of $1.13. As always, we caution investors that Amazon management does not manage to traditional financial metrics. We expect Amazon to continue to spend on infrastructure and growth initiatives. Our five-year earnings growth rate projection is 18%.

Amazon’s consensus analyst price target is now closer to $357, more or less in-line with the Citi call from Tuesday. Jeff Bezos’s company shares were up over 2% at $298.16 after Tuesday’s open, against a 52-week trading range of $284.00 to $408.06.

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On a separate note, Amazon has signed Woody Allen to write his first TV series ever. The analyst upgrade and the lower price target made no mention of this, so they are merely coincidental events.

About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.