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Piper Jaffray Cuts to Underperform

From Standard & Poor's Equity Research

Piper Jaffray downgraded (AMZN) to underperform from market perform, noting the Internet company's second quarter results.

Analyst Safa Rashtchy says the second quarter essentially is in line when adjusted for a higher-than-estimated tax rate. But he notes that gross margin contraction accelerated as the company continues to focus on lowering prices to drive revenue growth. He says that while reduction of operating income guidance is expected, scope was larger than previously disclosed; it also takes Amazon further away from its goal of double-digit margins. He notes the company's non-disclosure continues to prevent investors from understanding continued high levels of operating expenses. He cut his 66 cents 2006 pro forma earnings per share (EPS) estimate to 55 cents and his 96 cents 2007 EPS estimate to 86 cents. His $38 stock price target moves to $25.

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