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Markets / Your Money Gets Rare 'Sell' Rating

Prudential analyst warns the price may be cut in half. Online retailer says it will turn first profit by year's end.

February 16, 2001|From Times Staff and Wire Reports

Prudential Securities on Thursday uttered a word rarely heard from brokerages in reference to Internet retailing giant's stock: "sell."

Prudential analyst Mark Rowen cut his 12-month price target on the stock to $9 from $20, citing "anemic" growth in the firm's core books, music and video divisions.

He advised clients to sell the stock, which some may have done Thursday: The shares (ticker symbol: AMZN) fell as low as $13.50, just above the 52-week low of $13.38, though they managed to close up 6 cents at $14.50 on Nasdaq.

The comments added Rowen to a very short list of analysts who recommend bailing out of Amazon at the current price. Out of 27 analysts polled by Wall Street tracking firm First Call/Thomson Financial, just three others have sell ratings on the stock, while 12 rate it "buy" and 11 say "hold."

The stock has already dived 80% from a peak of $76.19 last year.

"The exact value of is impossible to determine at this juncture with available information," Rowen said. "For if present value is simply the company's future earnings . . . one certainty is that future profits at Amazon are extremely uncertain."

Amazon Chief Executive Jeff Bezos pledged last month that the company, which has lost money in all five years of its existence, would turn its first profit by year's end.

But Bezos didn't promise a "net profit," only a "pro forma operating profit," which excludes things such as interest payments on debt.

Still, most analysts cheered even that qualified goal, and pointed to recent moves such as cutting staff and trimming unprofitable items from inventory as signs that Amazon is serious about delivering for investors.

"Everything that they've announced in the past three weeks has been geared to show investors that they've focused on the bottom line and they are taking baby steps to get there," said Jeetil Patel, an analyst with Deutsche Banc Alex. Brown.

Since it started selling books online in 1995, the company has expanded its offerings to include everything from CDs and videos to lawn mowers and kitchen appliances, a strategy that raised concerns it was expanding too fast.

Rowen hit on those concerns Thursday, saying that the books, music and video unit grew a disappointing 11% in its fourth quarter, while sales of toys and electronics added little value.

At best, Rowen said, Amazon could be worth $62 a share longer term, but in a worst-case scenario, investors will reap little, if any, value. He now values the firm at $6 to $10 a share.

Other analysts, however, said such concerns are already built into the crumbled share price.

"These aren't new concerns, they've been flagged and raised for a year now. . . . This is kind of beating a dead horse," Patel said.

He has a "market perform" rating on Amazon, and thinks the stock will trade in the $12 to $15 range until the profit picture becomes clearer.

Prudential Securities has been stressing its objectivity relative to other brokerage firms since Prudential withdrew from most investment banking activities in December. That move freed the brokerage from conflicts some investors see when analysts cover the companies whose underwriting and advisory business their firms seek.

Meanwhile, Amazon CEO Bezos filed Thursday to sell 425,000 of his Amazon shares. That is a sliver of the 117 million he owned at year's end.


Reuters and Bloomberg News were used in compiling this report.

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