Battleground: Analysts diverge on Amazon ahead of earnings

Today, Raymond James analyst Aaron Kessler downgraded Amazon.com (AMZN) to Market Perform as he sees the shares being "fairly valued" after the stock's run-up. His peer at Pacific Crest was also cautious on the stock ahead of quarterly results, saying the company is likely to miss expectations. This comes a day after two research firms increased their price targets on Amazon's shares given their more bullish outlook. MOVING TO THE SIDELINES: In a research note this morning, Raymond James' Kessler downgraded Amazon to Market Perform from Outperform and removed his previous $925 price target. The analyst told investors that he believes shares are "fairly valued" and that he expects investment levels to remain elevated near-term. Additionally, Kessler pointed out that Wall Street consensus operating income estimates for the second quarter appear aggressive, and that he believes the second half of 2017 margin improvement expectation is already reflected in the shares. Furthermore, the analyst noted that he expects less near-term upside for Amazon Web Services, the company's cloud infrastructure segment, given December price cuts and increasing competition. At current levels, Amazon will need to begin to show greater operating leverage for shares to move meaningfully higher, he contended, adding that he would like to see improved margins and lower losses for International, shipping costs and Prime Video. PACIFIC CREST SEES EPS MISSING EXPECTATIONS: Meanwhile, in a research note of his own, Pacific Crest analyst Edward Yruma told investors that he believes Amazon continues to gain share in retail and at AWS, and that a Consumer Survey shows Prime membership has reached 51% of U.S. households, with the company taking steps to attract less-affluent consumers. However, the analyst pointed out that he expects Amazon's first quarter earnings per share to miss expectations, driven by fulfillment expenses and reduced cloud growth amid greater competition. While Wal-Mart's (WMT) shift during the first quarter to change free shipping policies likely did not materially affect Amazon's quarter, the recent initiation of the former's in-store pickup discounts opens the early innings of a potential price battle, Yruma argued. BULLISH AHEAD OF RESULTS: Yesterday, two research firms raised their price targets on Amazon ahead of quarterly results, which are expected to be reported on April 27. Wedbush analyst Michael Pachter increased his price target on Amazon's shares to $1,250 from $900, matching the Street high according to Bloomberg data. The analyst told investors that he expects the company to continue delivering "substantial" earnings growth, tempered by spending on new initiatives. Further, Pachter believes Amazon will report first quarter revenue at or above the high end of guidance, driven by "strong" growth of Prime memberships, "solid sales" of Amazon-branded products, and AWS growth. The analyst reiterated an Outperform rating on the stock. Also bullish on Amazon, his peer at Goldman Sachs raised his price target on the stock to $1,100 from $1,000. Analyst Heath Terry reiterated a Conviction Buy rating on Amazon, saying he expects faster revenue growth than consensus currently sees, which will more than offset near-term margin pressures. PRICE ACTION: In morning trading, shares of Amazon are fractionally up to $907.66. Over the last three months, shares of the e-commerce giant have risen 8.5%.