Friday, October 23, 2009

Amazon soaring (AMZN)

Last night Amazon (AMZN) beat earnings handily, reporting EPS of 45cents versus the street's expectation of 33cents. Shares are up 26% today to $118, on volume of 46million shares with over an hour left before close. Crazy.

While many companies have reported weak top-line (revenue) numbers and relied on cost-cuts to boost earnings, Amazon's $5.45billion in sales was almost 10% higher than anticipiated -->> an impressive beat for such a large company.

Investors were thrilled with Q4 revenue guidance of $8.1-9.1billion, the midpoint of which is well above the street's expectation.

Kindle was a massive contributor to earnings growth, although the company did not break out details of units sold. They did drop the price slightly, as competitors are approaching the market at cheaper price points.

The valuation is what keeps me away from this stock (apparently to my detriment!). Analysts are falling over themselves today increasing their price targets, many in the $130-150 range. They're citing a deserved "premium" due to the firm's growth opportunities and superb execution. No argument there from me, but WHAT premium is appropriate?

The S&P500 trades at a forward PE of about 16. I'll boost Amazon's 2010 eps estimate to $3.00, from the current 2.19. Netting out their $9 per share in cash, that's a PE of 35!! So right now their premium to the market's valuation is 123%, and the $150 price targets imply a 47 PE or 193% premium. Maybe that's fair, but it's far too much of a guessing game for me.

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