AmTech Says Sell Amazon.com (AMZN) Ahead of Q2 Earnings

July 22, 2008 12:22 PM EDT Send to a Friend
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American Technology Research reiterates its Sell rating and $65 price target on Amazon.com (Nasdaq: AMZN) ahead of its Q2 earnings report, scheduled out tomorrow (July 23) after the close.

The firm expects Amazon to report "meet & keep" earnings, but AmTech notes that the chances for a lower midpoint on the company's guidance have greatly increased since Amazon's last quarterly report. Further, AmTech says that it now has "even greater conviction" in its Sell rating and its thesis that "Amazon’s valuation was unjustified and unsustainable given the deterioration in consumer sentiment and discretionary spending in the U.S., U.K. and Germany." Factors leading this deterioration, according to AmTech, include: "record gas and food prices, plummeting home equities and the constant reinforcement of a Doomsday economic scenario by the talking heads of the 24-hour news cycle..."

Looking to evaluate Amazon's performance over the last quarter, AmTech brings up the philosophical principle Occam's Razor, which states that "all other things being equal, the simplest solution is the best". The firm questions: "which of the following is easier to believe: 1. AMZN, a retailer of non-essential consumer goods, is somehow immune to the myriad macroeconomic pressures mentioned above; or 2. AMZN's boat will fall from its lofty heights as the tide of discretionary consumer spending continues to ebb." The firm mentions Amazon's "remarkable resilience" thus far during this cyclical downturn and believes "it is a matter of when, not if, it succumbs."

Notably, AmTech believes that if Amazon reports "any combination of miss & lower", this unforgiving market will take its stock below $60. Shares of Amazon are trading around $67.00 today.

Amazon.com, Inc. operates retail Web sites, as well as provides programs that enable third parties to sell their products on its Web sites in North America and internationally.

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