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Amazon Stock’s Price Is Falling. Why It Could Be a ‘Phenomenal Buying Opportunity.’


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(Photo by MANDEL NGAN/AFP via Getty Images)


AFP via Getty Images

Amazon.
com stock fell down 7.6% Friday, a day after the company posted lower-than-expected March quarter profits.

On Thursday, the company projected that operating income for the June quarter would be about break-even due to costs related to various efforts to address the Covid-19 pandemic. Revenue growth in the March quarter beat estimates, but costs rose, as the company hired 175,000 additional workers to meet a spike in e-commerce demand with many people working and learning from home.

Seeing profit-taking in Amazon (ticker: AMZN) shares is hardly surprising; the stock had rallied 34% for the year through Thursday’s close. Wall Street analysts remain bullish on both the company’s e-commerce business and its Amazon Web Services cloud arm. More than a dozen analysts raised target prices on the stock Friday morning, and most of the Street commentary was steadfastly bullish about Amazon’s position coming out of the downturn.

Amazon CEO Jeff Bezos said in a statement that the Covid-19 crisis “is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced.” Under normal circumstances, the company would be projecting June quarter operating profit of $4 billion or more, he said, adding that instead, it plans to spend all of that money, and perhaps more, “on Covid-related expenses getting products to customers and keeping employees safe.” He even said the company now has a dedicated team working on building incremental Covid-19 testing capacity.

J.P. Morgan analyst Doug Anmuth came away from the earnings report jazzed about Amazon’s prospects: He repeated his Overweight rating, upped his target to a Street-high $3,000 from $2,525, and added the stock to his firm’s “Top Ideas” list. “We believe that Amazon is perhaps the only company that can service customers this well with scale and effectiveness during the crisis,” he writes, adding that the benefits could include increased customer loyalty and faster adoption of e-commerce, despite higher costs in the near term.

Morgan Stanley’s
Brian Nowak repeats his Overweight rating, lifting his target to $2,650, from $2,400, noting the stock remains a “top pick.” He writes that the quarter’s results “reinforced our views that the current work-from-home and shelter-in dynamics are likely to lead to faster e-commerce growth, faster Amazon share gains and a longer Amazon growth runway.”

Nowak also sees the company’s commitment to investing in protective gear for staff and customers as a potential point of competitive advantage. “Going forward, we expect consumers to place a higher bar on the sterility of their packages and products …and Amazon’s investments are likely to be a differentiator that will make it more expensive to compete against.”

MKM Partners analyst Rohit Kulkarni theorizes that Amazon could become a serious player in health care coming out of the downturn, while also “benefiting from accelerating adoption of online shopping of grocery and household items.” He writes: “Perhaps, Amazon’s experience with creating new processes and products for combating a pandemic might usher it into solving America’s health care problems.” He keeps his Buy rating on the shares, and lifts his target to $2,550, from $2,500.

Pivotal Research analyst Michael Levine likewise repeats a Buy rating on Amazon shares, while lifting his target price to $2,700, from $2,450. “Big picture, we think that Covid-19 drives greater ongoing adoption of Amazon Prime, further weakens offline retail, and the level of investment the company is making in fulfillment will drive a competitive moat that will be unsurmountable for any other competitor.” He says a small pullback in the stock would be “a phenomenal buying opportunity.”

Meanwhile, the House Judiciary Committee disclosed Friday that it sent a letter to Bezos asking him to testify about the company’s competitive practices. The letter is in response to a recent Wall Street Journal article that says the company used data from third-party sellers on the platform to develop competing products. Amazon didn’t immediately comment.

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

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