Evercore ISI Downgrades Amazon.com (AMZN) to Hold on Valuation and Capital Leasing Activity
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Evercore ISI downgraded Amazon.com (NASDAQ: AMZN) from Buy to Hold while maintaining a price target of $460, citing valuation and the growing capital investment being seeb through leasing activity.
Analyst Ken Sena commented, "We’re reducing our Amazon rating to HOLD from BUY as shares now trade within a close range of our $460 target. While retail and Amazon Web Services (AWS) trends appear on track and N/T operating margins seemed poised for upside this quarter and next, our reduced rating recognizes the strong run in shares, now up 45% YTD, and the growing capital investment we are seeing through leasing activity, making modeling upside on the basis of FCF increasingly difficult."
He noted capital lease activity is ramping. "As we look back historically, we find the use of capital leases in place of standard Capex has steadily grown--from 1/3 of total capital investment (Capex + PP&E Acq. under Capital Leases) in 1Q13 ($340m) to over 1/2 in 1Q15 ($954m). While we understand the rationale here, as Amazon takes advantage of a low interest rate environment, it nevertheless masks the true capital intensity of the business when considering standard FCF measures as cash payments are spread out and flow through financing activities (as opposed to Capex through investing activities) on the C/F."
Shares of Amazon.com closed at $440.84 yesterday.
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