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After Amazon Trounces 2Q Estimates, 5-Star Analyst Says There’s More to Come

Amazon (AMZN) elicited gasps of awe on Wall Street last week. Analysts were bracing for a 2Q20 report packed with top line goodness tempered by a bottom line weighed down by rising expenses. However, Amazon rose to the occasion by blowing the estimates out of the water.

In Q2, Amazon’s net revenue increased by 40% year-over-year to $88.9 billion, way ahead of the $81.5 billion the Street was calling for, and easily beating its guidance of $75 billion to $81 billion.

Even more impressive, however, were the operating income results. Coming in at $5.8 billion, the figure obliterated the company’s high end of guidance of $1.5 billion. This is even more remarkable when taking into consideration the $4 billion Amazon shelled out in the quarter on COVID-19-related expenses. All in all, Q2 GAAP EPS landed at $10.30, a massive $8.80 beat.

Looking ahead to Q3, Amazon’s guidance also surpassed the forecasts. Bezos and Co. are anticipating net sales of between $87 billion and $93 billion, indicating year-over-year growth of 24% to 33%. The Street was expecting $86.3 billion.

The superlatives have been rolling in since the report’s publication, and not to be left out, Pivotal analyst Michael Levine calls the results nothing less than “jaw dropping.” Although the growth was undoubtably accelerated by the coronavirus, Levine expects the outperformance to continue.

The 5-star analyst said, “As we framed after Q120, big picture, we think that Covid-19 1) drives greater ongoing adoption of AMZN prime, 2) further weakens offline retail, and 3) the level of investment the company is making in fulfillment will drive a competitive moat that will be unsurmountable for any other competitor. We had assumed as was reflected in the Q220 OI guide that Covid-related costs would weigh down operating margins, but that did not even manifest. We think that once the higher capacity footprint has been established over the course of H220, profitability will meaningfully surprise to the upside in 2022 and beyond.”

Accordingly, Levine reiterated a Buy recommendation and boosted the price target significantly – from $2,700 to $3,925. What’s in it for investors? Potential upside of 25%. (To watch Levine’s track record, click here)

Among Levine’s colleagues, the e-commerce giant has almost total support. 2 Hold ratings are outgunned by 37 Buys, resulting in a Strong Buy consensus rating. With an average price target of $3,678.15, the Street forecasts possible upside of 17% over the next 12 months. (See Amazon stock-price forecast on TipRanks)

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Marty Shtrubel
Marty Shtrubel was born in the UK, raised in Israel, and then headed back to London, where he made music and pursued a career in sound recording. After a move back to Tel Aviv, he set off on a new path and now works as a financial blogger at TipRanks.

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