Amazon.com (AMZN) was downgraded by analysts at Evercore ISI from a “buy” rating to a “hold” rating in a report to clients. The target price was increased to $460.00 from $440.00. Considering the last close of $ 440.1, this suggests an upside potential of 4.5% from the company’s current price.
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 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." Ken Sena continued saying: “As we look back historically, we find the use of capital leases in place of standard Capex has steadily grown – from one-third of total capital investment (Capex + PP&E Acq. under Capital Leases) in 1Q13 ($340m) to over one-half 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.” Continue Reading »