Believing Amazon's Amazing Q2 Results Already Reflected In Price, Argus Recommends A Hold

Amazon.com, Inc. AMZN reported impressive 2Q16 results, with 31 percent sales growth. Argus’s Chris Graja maintained a Hold rating on Amazon, saying that the shares already reflect the company’s outstanding growth prospects.

2Q16 Results

Amazon reported its quarterly revenue at $30.4 billion, representing 31 percent y/y growth. Analyst Chris Graja noted that the company achieved outstanding revenue growth “in an environment where many retailers would be happy for flat sales growth.”

Gross profit dollars rose 40 percent, while gross margins expanded by 480 basis points. Net income surged to $857 million, or $1.78 per diluted share, from $92 million, or $0.19 per share, in 2Q15.

Estimates Raised

The EPS estimates for 2016 and 2017 have been raised from $5.10 to $5.85 and from $7.56 to $10.00, respectively.

“While the company is at heart a retailer, it also has a rapid innovation cycle and a knack for leveraging its existing assets into new businesses and markets — two attributes more common to tech companies than retailers,” Graja wrote. He added that Amazon is unlikely to have changed its business model of heavy investment, low price and low margin.

Although the ecommerce space has become more crowded, “Amazon has not lost its appeal to shoppers and remains in an enviable industry position,” the analyst commented. He noted, however, that the shares had performed strongly over last year and currently appear fully valued.

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