StockBeat: Amazon Gets Price-Target Hike Ahead of Earnings

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© Reuters. © Reuters. – Amazon (NASDAQ:) continues to rack up gains after Credit Suisse (SIX:) hiked its price target on the company’s stock, betting that its advertising business will boost margins and cash flows at a time when the e-commerce giant’s cloud business is expected to continue to slow.

Credit Suisse raised its price target on Amazon (NASDAQ:) to $2,400 from $2,225. Amazon rose nearly 1%.

Credit Suisse analyst Stephen Ju highlighted a number of supportive factors for the sunnier outlook, including e-commerce operating margin expansion, faster-than-expected free cash-flow growth related to its advertising segment and upward bias on Amazon Web Service revenue forecasts (AWS).

Amazon Web Services has been the company’s golden goose for many a quarter, but saw growth slow last quarter as the company offered price concessions to attract larger enterprise clients, who typically sign longer-duration contracts.

In the second quarter, AWS growth fell to its lowest level since the segment began reporting separate results, up 37% from a year ago, well below the 49% growth from a year earlier.

The slowdown in AWS revenue growth will likely continue into the third quarter, with Credit Suisse forecasting growth to decelerate to 36% for the quarter, but lead to more sustained growth for the company.

The cloud segment accounts for just 13% of Amazon’s overall revenue, but about 70% of the company’s overall operating income.

“Despite the short-term dip in operating profit, we fully expect Amazon to grow into the higher OpEx base as unit economics recover,” Credit Suisse said.

The upgrade comes just a week ahead of Amazon’s quarterly results due Oct. 24. But not everyone on Wall Street shares Credit Suisse (SIX:) optimism.

Earlier this week, Jefferies warned investors not to buy Amazon on weakness ahead the earnings report on worries that many are expecting too much from the e-commerce giant.

“Fourth-quarter consensus operating income may prove to be a stretch” and this “could weigh on Amazon shares if guidance once again falls short of street numbers,” Jefferies analyst Brent Thill said.

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