Amazon Reports Earnings Thursday. Wall Street Expectations Are Running Sky High. - Barron's

Amazon.com CEO Jeff Bezos

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Amazon.com reports first-quarter earnings after the close of trading on Thursday, and expectations on Wall Street are running sky high. With many millions of people sheltering in place, the e-commerce giant has been deluged with demand. Early in the crisis, the company announced plans to hire 100,000 extra workers. A few weeks later, those slots filled, Amazon announced plans to hire 75,000 more.

Amazon shares (ticker: AMZN) have surged 27% year to date, establishing a record high. The company remains one of just three stocks with a market capitalization above $1 trillion, along with Microsoft (MSFT) and Apple (AAPL). The vast majority of Wall Street analysts who follow Amazon are bullish on the stock even after the recent run, optimistic that the current crisis will boost not only Amazon’s core retail business but also its cloud business and even Whole Foods, its offline grocery chain.

When Amazon reported fourth-quarter earnings at the end of January, the company projected revenue for the March quarter of $69 billion to $73 billion. That predated the onset of the virus in most Western countries. The Wall Street analyst consensus forecast is $73.06 billion in revenue with profits of $6.32 a share.

For the June quarter, the consensus forecast is $76.89 billion in revenue and profits of $5.95 a share; for the full year, the Street sees $336.49 billion in revenue and profits of $27.96 a share.

This could be a situation where analysts simply aren’t thinking big enough—that’s what happened with first-quarter net new subscribers for Netflix (NFLX) and for first-quarter revenue at Intel (INTC). In short, this could be another blowout. And the same could be true for second-quarter guidance. Note that the additional revenue from a shopping frenzy will be offset in part from the company’s hiring spree.

Analysts have been hustling to lift their price targets and revenue forecasts for the company.

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JMP Securities analyst Ronald Josey last week repeated his Market Outperform rating on Amazon shares and upped his price target to $2,650 from $2,450.

“Over the last several weeks, Amazon’s share of essential products, like health and household supplies as well as groceries, has ramped significantly and we believe this demand can lead to greater consumer wallet share gains longer term,” Josey writes. “With traditional retail likely less of a competitor going forward as brick-and-mortar retailers close and/or significantly reduce footprints, we believe Amazon is among the best positioned to benefit from rising e-commerce trends.”

Oppenheimer’s Jason Helfstein made a similar move, repeating his Outperform rating while boosting his price target to $2,700 from $2,400. He lifts his first-quarter revenue target to a Street-high $78.6 billion, more than $5 billion above consensus. Helfstein points to the company’s huge hiring spree and its pause on adding third-party inventory as signs of soaring demand.

He also notes that Target (TGT) recently reported digital sales up more than 100% on a year-over-year basis, though obviously off a smaller base. He and other bulls assert that the Covid-19 crisis is boosting adoption of e-commerce—with little chance of going back.

BofA Global Research analyst Justin Post on Monday repeated his Buy rating and $2,480 price target. “Amazon appears to be putting the brakes on demand, including spending less on marketing and removing item promotions on Amazon Websites,” he writes in a research note. “Delivery times have also expanded significantly. All of this suggests that revenue upside could be higher if capacity was available. In the stay at home environment, Amazon’s utility is higher than ever, which we expect to drive an uptick in Prime members, a likely bright spot in the quarters ahead.”

Wells Fargo analyst Brian Fitzgerald on Monday repeated his Overweight rating on Amazon shares, while lifting his price target to $2,725 from $2,500. “We remain focused on the long-term opportunity and our view that the pandemic has likely supplied a sustainable tailwind to the business, acting, we believe, as a one-way ratchet on e-commerce penetration and consumer engagement with the AMZN ecosystem.”

As noted in a story on Monday, R5 Capital analyst Scott Mushkin this week is bucking the trend, changing his rating to Sell from Buy. He argues that most of the company’s businesses are vulnerable to an economic slowdown and asserts that “prudence dictates reducing exposure.” That call, coming just a few days ahead of earnings, is either going to look bold and brilliant—or tragically early.

Amazon shares were down 0.9%, at $2355, in recent trading. The S&P 500 was up 0.9%.

Write to Eric J. Savitz at eric.savitz@barrons.com

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Amazon Reports Earnings Thursday. Wall Street Expectations Are Running Sky High. - Barron's
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