American Technology Research's Tim Boyd is out with a controversial 'sell' call on Amazon (AMZN) today, based on expected weakness from the U.S. consumer, valuation and pressure from eBay (EBAY). Excerpts from the note:
AMZN (Initiate with a SELL): World's Greatest Retailer, But Still Just A Retailer – We Are Sellers of the Stock at Current Levels.
Despite our expectations for outstanding 4Q07 results, we believe that the tremendous uncertainty surrounding the state of the U.S. consumer will force AMZN to provide very conservative 2008 guidance. We do not believe that AMZN's 54x 2008 P/E reflects this possibility.
In addition, EBAY is getting ready to strike back competitively, and that may force AMZN to ramp its 2008 Marketing and Tech & Content spending more than the market anticipates. We also think AMZN may have to factor the possibility of some third-party seller reductions into its guidance.
Lastly, although we expect cash operating margins to rise in 2008, we believe the rate of improvement will slow substantially. In this report we provide a detailed analysis of the company's operating leverage. Let us be clear - AMZN is a must-own stock for the long-term.
In our view, AMZN is on its way to becoming a $100 billion company by the middle of the next decade at the latest. We simply believe that a much better entry point is on the way.
Our $69 price target is 28x our 2009 non-GAAP EPS estimate of $2.50 and 13x our 2009 EBITDA per share estimate of $4.60 (adjusting for $7 in estimated YE09 cash per share).