Amazon Still A Buy After Strong 3Q Earnings (AMZN)

Deutsche Bank remains a buyer of shares of Amazon

on the overnight weakness, particularly as the near-term investment in fulfillment, coupled with healthy unit growth rates, should yield improved operating profit dollar growth in future quarters. While the market may be concerned with higher opex in the near term, 41% unit growth in 3Q suggests that growth remains robust. Deutsche Bank thinks operating profits will increase 26% from 2009 to 2012, and view near-term investment as the cost to nearly double every two years. Deutsche Bank reiterates its BUY investment rating on shares of Amazon and adjust the price target to $186 from $145. The price target is based on 31x 2011 EBIT of $2.6bn (in-line to its 31% projected EBIT growth rate in 2011). In addition, the 31x 2011 EBIT multiple represents a premium to the broader e-commerce group (trading at 17x 2011 EBIT) given Amazon's strong fundamentals, diversified and growing base of consumer, unique logistical distribution and faster operating profit growth vs. the group (31% vs. 10% range). Risks include increased competition from traditional retailers could force intense pricing pressure and advertising rate inflation. AMZN is trading at $164.35.