Amazon.com Inc

Amazon.com Inc (NASDAQ: AMZN) is an online retailer that also serves consumers through physical stores. It also manufactures and sells electronic devices, including Fire TV, Kindly, Fire tablet, among others. 

Investment Rationale – Hold at USD 3,331.48

• In Q3 FY21, Amazon expects to report net sales in the range of US$106.0 billion and US$112.0 billion, representing 10% to 16% growth on Q3 FY20.
• Jeff Bezos will take up the role of Executive Chair in Q3 FY21, while Andy Jassy will take over the position of Chief Executive at that time, reflecting solid succession planning in the business.
• From a technical standpoint, the momentum oscillator 14-day RSI (33.20) is in the oversold zone, while the stock price has gone below the lower Bollinger Band.
• Over the last five quarters, Amazon has maintained EBITDA margin and net margin of over 14.7% and 5.7%, respectively. Both the margins are quite higher than the industry median.

Risk Assessments

• Amazon confronts intense competition across geographies, which can impact the margins.
• The international operations are exposed to economic and political risk, government regulations, credit risk and unfavourable foreign exchange movements.
• The lockdown easing and economic reopening might dampen the trend of online shopping.

Financial Highlights (for the second quarter ended 30 June 2021, as on 29 July 2021)

 (Source: Company Website)

• During Q2 FY21, operating cash flow increased 16% for the trailing twelve months on US$51.2 billion for the trailing twelve months ended 30 June 2020.
• In Q2 FY21, net sales increased 27% year-on-year to US$113.1 billion and operating income surged to US$7.7 billion in Q2 FY21.
• Similarly, net income increased to US$7.8 billion in Q2 FY21 with diluted earnings per share of US$15.12.

Share Price Chart    

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative) 

Conclusion

Amazon has shown tremendous growth in top-line and bottom-line income statement items during the first half of FY21. Therefore, it is projecting significant growth in FY21's net sales. Subsequently, operating income for FY21 is likely to be between US$2.5 billion and US$6.0 billion, post assuming nearly $1.0 billion of costs related to Covid-19. In a nutshell, Amazon has bright long-term growth prospects, and it is well-positioned to manage pandemic induced volatility. Therefore, the Company is well-positioned to create substantial value for its shareholders. The stock made a 52 week High and Low of USD 3,773.08 and USD 2,871.00, respectively.

Based on the strong fundamentals, solid guidance, and valuation conducted above, we have given an “Hold” stance on Amazon.com Inc at the closing price of USD 3,331.48 (as on 2 August 2021), while we look forward to reviewing that how things would unfold for the Amazon when Andy Jassy will take over the position of Chief Executive in Q3 FY21. 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.