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Amazon: It’s a No-Brainer to Own, Says Munster

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Amazon.com (AMZN) is set to report first-quarter earnings this Thursday after the market close. Consensus estimates peg the online retailer earning $0.09 a share on revenues of $16.18 billion.

Last quarter the company missed on profit, revenue and guidance, but was given a pass based on signs of improving operating margins. Amazon enthusiasts are bolstered by the company’s investment in building out fulfillment centers and adding content licensing agreements. Most seem undeterred by its sky-high valuation -- a one-year forward P/E of 74, making this one of the most expensive stocks in the land.

In the attached video, Gene Munster, sr. analyst at Piper Jaffray, explains his belief that the more fulfillment centers Amazon announces, the better the stock price will perform.

“Bottom line, that is a sign that margins are going to be drifting higher. And for this stock to work, we believe there needs to be the hope of margin expansion, not actual margin expansion," he explains. "We think that they will give some glimmer of that when they report their quarter.”

Munster calls the stock a long-term hold based on the fact that 7% of goods purchased in the U.S. are bought online; a number he says is going higher. He has an “overweight” rating on the stock with a $329 price target.

Further, this analyst will be listening for initiatives off the conference call that are a little outside of the box.

“There’s a chance that they also try to get into the mobile wallet space,” he predicts. “Apple (AAPL) is going to be in there with their wallet, Android is going to have their version of the wallet. It makes logical sense that an e-Commerce company tries to get somewhat involved there.”

Finally, the looming vote in Congress on Internet retail sales tax does make Munster’s list of potential headwinds. The Senate could pass the Marketplace Fairness Act as soon as this week. The bill would allow states to collect state and local sales tax on purchases made online. Amazon supports the broad measure, but mostly because their sales are already subject to state tax because it has physical presence through its fulfillment centers.

In Munster’s latest research note, his list of “risks to achievement of price target” are:

State Internet sales tax collection legislation, slowing consumer spending and eCommerce growth, gross margin compression, competition, and FX changes.

Despite the headwinds, as all companies have, Munster is standing by this stock not as a trade, but as an investment.

“If you take the perspective of a great theme to own for the next few years, it’s a no-brainer to own Amazon,” he concludes.

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