Goldman Sachs Lowers Price Target on Amazon.com (AMZN)

Goldman Sachs is out with a research report this morning, where it reiterates its Buy rating on Amazon.com AMZN; it also lowered its price target from $190.00 to $150.00. The GS analysts said, “2Q revenue was in-line with our estimate (+41% yoy) and 3Q guidance was above our estimate. However, 2Q EPS was 10% below our estimate (+16% yoy) and Amazon guided for 3Q operating income below our estimate. We attribute margin pressure to Amazon building out 13 fulfillment centers in 2010 (rather than the usual 3-5) and also headquarter relocation expenses. Amazon is adding fulfillment centers in regions where we see booming e-commerce demand such as inland China (Wuhan) and southern/central Europe (Provence) and we believe this capacity growth will support above-consensus revenue growth from 4Q onward. We raise our 2010-2012 revenue by around 1-4%, reduce forecast margins, and reduce 2010E EPS by 6% to $3.43, 2011E by 7% to $4.45, and 2012E by 2% to $5.97.” They added, “We believe investors should buy Amazon stock at this price and at this time. Amazon trades at just over 1X our forecasted 2011E revenue, a multiple at which the stock has bounced from in the past when margins were lower than today, and at 24X our 2011E EPS, vs our forecast revenue growth rate of 25% per year. We expect sentiment to improve in coming months as investors look through short term factors such as headquarters relocation expenses and accounting for agency e-books depressing domestic media revenue, look beyond margin guidance to above-consensus revenue guidance, and look forward to Amazon sustaining 25%-plus revenue growth rates as it leverages investments in China, new European markets, and elsewhere.” The GS analysts closed by saying, “We lower our 6-month DCF-based target price to $150 ($190 prior) to reflect 2Q results and a lowered terminal FCF multiple (14X vs 16X prior), which equates to 21X our 2011E FCF/share of $7.25.”