By Dan Gallagher Amazon.com Inc. (AMZN) has seen its market value surge by more than 30% to a record high over the past two weeks, but at least one analyst believes the market still isn't fully valuing the company's potential. Jeff Lindsay of Bernstein Research upgraded Amazon to an outperform, or buy, rating on Friday, and boosted his price target to $160--the highest target on Wall Street for the stock, which has jumped significantly since reporting its third-quarter results. That gave the stock another lift on Friday. Amazon shares were recently up 4.3% to $125.76. "We believe that the company's unique and differentiated attributes have shown their value once again by enabling Amazon to reaccelerate revenues much sooner than expected coming out of the economic downturn," Lindsay wrote in a note to clients. On Oct. 22, Amazon reported a surprise 69% growth in third-quarter profit. The company said it saw an improvement in sales across all its product lines, including its flagship media business, which was helped in part by a recovery in videogame sales. The company's Kindle e-book reader has also become a popular draw, though Amazon refuses to disclose specific sales figures. Those results sparked a surge in trading on Amazon's shares, sending the stock to a new all-time high on a split-adjusted basis. According to Lindsay, despite the recent run-up, the market still gives Amazon insufficient credit in three areas: One, he believes revenue-growth estimates are too low; two, potential operating margins are underestimated; and, three, the market is underestimating the strength of the company's free cash flow. "Amazon's large cash flow boost from negative working capital is sustainable and will increase in 2010," he wrote, adding that capital expenditures for distribution-center expansion was incurred in 2008, "greatly benefiting cash flow in 2009 and 2010." He said he now thinks his own past estimates have been "structurally too low--based on an implicit assumption that company is priced for perfection." He said many assumed the company to be in the ninth inning of a baseball game. "The reality is that the rapid resurgence in [the third quarter of 2009] confirmed for us that Amazon is nearer to the fifth inning [the middle of the game] rather than the ninth and there are still many more years of profitable future growth to come," he wrote. Despite its high valuation, Amazon enjoys strong sentiment on Wall Street. More than two-thirds of the 35 brokers covering the stock carry buy ratings, while nine remain neutral and two maintain sell calls. The median price target on the stock is $125, according to data from Thomson Reuters. -By Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com
