Analyst Expectations

We are forecasting revenues of $5.08 billion and EPS of $.35. This would represent a 19% increase in revenues from last year's $4.26 billion in the same period. The current analyst consensus estimates calls for revenues of $5.03 billion and EPS of $.33. On July 23, the company provided third quarter 2009 revenue guidance of $4.75 - $5.25 billion (guidance excludes Zappos.com).

Amazon.com is poised to report another quarter of stellar growth despite the difficult retail environment. We are expecting y/y sales growth to increase from 14% last quarter to 19% this quarter driven by increasing consumer confidence, the popularity of the Kindle reader, and the acquisition of Zappos.com. Traffic growth for Amzon.com is also tracking quite strong, with Compete data showing a 24% y/y increase in the third quarter.

Amazon's impressive performance over the last few quarters has to be exciting to investors as they look ahead to a better economic environment next year. Despite the worst recession since the Great Depression, Amazon.com has managed to continually post double-digit sales growth each quarter. The company has established itself as the clear market leader within the ecommerce space and will benefit from the further migration by consumers to online shopping.

Share Performance

Since the beginning of the year, Amazon.com's shares have surged nearly 85%. In 2008, Amazon's shares fell 45% and underperformed the 34% decline in the Dow Jones industrial average.

Valuation

Shares are now trading at 43x consensus 2010 EPS estimates. This is a well deserved premium to the relative valuations of their peer group. Amazon.com continues to offer investors a compelling growth story with Wall Street expecting earnings to growth 30% next year.  

Recommendation: Buy with a $100 price target