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MV Weather Report: Amazon Caught in a Heat Wave

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Rain or shine, we review the day's biggest stock stories.

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Amazon.com (AMZN) has been one of the leaders of the March rally, up from a low of $59 all the way to a high of $94. The online retailer reported impressive second quarter numbers: Net Sales were up year over year (y/y) by 14.5%, Operating Income was up 24% y/y, and the company beat EPS thanks to better than expected Gross Margins. Since reporting those results Amazon has pulled back from its high to $84.16.

The stock was a hot topic today on Minyanville's Buzz and Banter and on Minyanville.com (here and here). Professor Smita Sanada gave her technical take today.

"Here's a visual on AMZN. $82.6 was the recent intraday low - Apart from that, I don't see any actionable support near by. Sure, the 50-dma lurks close but it has not really provided much support on the charts recently.


Click to enlarge

"If this support of 82.6 is broken, the final gravitational pull might be toward $77, as seen on the chart.

"And on another note, I noticed Amazon is shipping cheaper school supplies (pencils, notebooks, filler paper etc.) this year, in addition to shipping the more expensive computers, College textbooks and backpacks. The one-stop-shopping would be good from the customers' perspective but I am not sure if this foray in low margin items is good for the company. For the Prime shipping customers, (pay a flat annual fee and get free 2-day shipping for the entire year), it would be a great deal to get these heavy and cheap items delivered to their homes, but would it be so for AMZN?"


Professor Smita does not like the short-term prospects for the stock, but some major brokerage firms like the company long term. Shortly after releasing its second quarter earnings, UBS came out with a note upgrading the company to a "Buy" and placing a $105 price target on it. Credit Suisse came out with a note that same day saying it maintains its "Neutral" rating and increased its price target to $80 by using a PE multiple of 28x and a P/FC of 19x.

The company has built a strong brand as the premier online retailer (even during the recession), the Zappos acquisition will help the company gain share in the online shoe sales market, and the Kindle is the cream of the crop of e-book readers. However, $84 a share maybe a little too much to pay for the company. Using Professor Smita's analysis, a pull back to the $77 level could be a decent buying spot for those bullish.

Have a great night!

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No positions in stocks mentioned.

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