Stock Picks: Amazon, Alaska Air, Check Point

Wall Street analyst opinions on selected stocks in the news Friday

By Bloomberg BusinessWeek

Amazon.com Inc. (AMZN)

BWS Financial upgrades to buy from neutral

After the close of trading Jan. 28, Amazon.com posted net income of $384 million, or 85¢ a share, for the fourth quarter, up 71% from year-ago net income of $225 million, or 52¢ a share. Founder and Chief Executive Jeff Bezos pointed to the popularity of the Kindle, the electronic book and periodicals reader now owned by millions of people.

Net sales rose 42% to $9.52 billion in the fourth quarter from $6.7 billion a year earlier. Excluding the $354 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 37% vs. the year-ago quarter.

Kindle owners read a lot, and with both editions of the device Amazon has sold six Kindle books for every 10 physical books so far this year, Bezos said.

Books aren't Amazon's only strong suit. Worldwide sales of electronics and other general merchandise increased 60% to $4.61 billion and would have been up 54% excluding the favorable impact from year-over-year changes in foreign exchange rates throughout the quarter. Amazon's acquisition of Zappos.com, completed Nov. 1, 2009, contributed about $200 million to fourth-quarter revenue.

Amazon expects net sales for the first quarter of 2010 to be $6.45 billion to $7 billion, up 32% to 43% from a year earlier. Operating income is projected to be $275 million to $365 million. This guidance includes roughly $110 million for stock-based compensation and amortization of intangible assets.

BWS Financial raised its rating on the stock to strong buy from sell on the strength of the latest earnings, singling out revenue that surpassed Wall Street analysts' expectations. The boost in Amazon's operating margins to 5% in the fourth quarter was the key reason for the upgrade, analyst Hamed Khorsand said in a Jan. 29 research note.

"[I]t seems the company has reached a revenue run rate where management cannot find anything to spend cash on," Khorsand wrote. "The scale in operations that investors have been waiting for was present in the fourth quarter results and was indicated in the first quarter [forecast]."

Although Amazon will face some tough competition in the second half of each year, the Amazon.com brand continues to succeed, Khorsand wrote. He expects the company to generate more than $32.2 billion in revenue in 2010 and to post operating profit of $1.6 billion for the year. Khorsand also raised his price target for the stock to $200, saying the cash flow generated from operations makes him confident the shares will be able to advance strongly over the next 12 months. Amazon shares traded at $124.65 on Jan. 29.

Alaska Air Group Inc. (ALK)

Jesup & Lamont Securities reiterates hold

Next Generation Equity Research reiterates buy, raises target price

The parent company of Alaska Airlines jolted Wall Street on Jan. 28 with a fourth-quarter profit that was far smaller than expected, 12¢ per share compared with the 35¢ analysts had projected, leading to a 10% decline for the stock. The Seattle-based airline cited higher costs for compensation and environmental compliance. Revenue of $846.1 million topped forecasts of $826 million, according to Bloomberg News.

Next Generation analyst Dan McKenzie said in a Jan. 29 client note that he considered the quarterly miss a "one-off event" and called the 10% stock decline a market overreaction. He further noted that Alaska faces a far more benign competitive environment as many of its rivals have decreased capacity in direct competition by about 8%, which could help 2010 revenues. As a result, he raised his target price on the stock to $46 from $44. Alaska Air Group fell 3.5% to $31.43 in Friday trading.

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