As $Amazon (AMZN.US)$ gears up to announce its Q2 earnings on Thursday after the market close, anticipation is building around what could be a remarkable performance.

With just six days to go, BofA Securities' analyst Justin Post has painted an optimistic picture for the e-commerce and cloud giant, with a $220 price target (a potential 22.3% upside) and maintaining a Buy rating.

Aiming For A Q2 Beat: $149 Billion Revenue In Sight

Post forecasts Amazon's Q2 revenues to hit $149 billion, 40 basis points above Wall Street's expectations. AWS is expected to grow at 18% year-over-year, beating the Street's 17% estimate.

With a projected operating profit of $14 billion, Amazon might surprise investors by exceeding expectations, potentially reaching as high as $15-$16 billion due to favorable factors like third-party fees and Prime advertising growth.

Retail Sales, Cloud Powering Growth At Amazon

Data trends suggest a promising Q2 for Amazon. Online spending growth has accelerated, according to BofA's aggregated card data and Bloomberg Second Measure, contradicting the Street's prediction of a more significant decline.

According to Post, AWS is set to benefit from robust backlog growth and increasing consumption spending, especially in AI model training. Additionally, Google's recent positive results signal limited pricing pressure for AWS, indicating a one-point quarterly acceleration and margin improvement.

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Cautious Q3 Outlook Amidst Margin Concerns

Despite the upbeat Q2 outlook, Post advises caution for Q3 profit guidance, citing high expectations and rising freight costs as potential risks.

Historically, Amazon's Q3 guidance tends to be conservative, often falling short of the Street's estimates, only to outperform by an average of 33% over the past three years. Post projects Q3 revenue guidance between $155.5 billion and $160.5 billion, suggesting a 5% quarter-on-quarter growth, with GAAP operating profit ranging from $12 billion to $15.5 billion.

Still Room for Growth Despite Expanded Multiples

Amazon's stock may be valued at 12.8x EV/EBITDA, below its 10-year average of 17x, but Post sees ample room for multiple expansions in 2024.

With expanding retail margins supported by Prime ad growth and AWS acceleration, Amazon is poised for further gains. Post emphasizes that improving margins justify a more traditional P/E valuation framework. The 30.7x Street '25 GAAP EPS is seen as reasonable, given the expected 27% two-year GAAP earnings growth CAGR.

As Amazon approaches its Q2 earnings release, all eyes are on the e-commerce giant to deliver another strong performance. With solid revenue estimates, cloud growth, and an optimistic outlook for the remainder of 2024, Amazon remains a compelling investment opportunity with a potential 22.3% upside, according to Post.

Will Jeff Bezos' brainchild continue to defy expectations and deliver another knockout quarter? We'll find out soon enough.

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