Amazon Turns a Page

If you're among the ill-starred investors who bought (AMZN ) shares in 1999 at more than 100 (adjusted for stock splits), you've probably banished it from your mind forever. Amazon crashed when the Internet bubble burst, falling to 5.50 by late 2001. The stock has since moved up, to 20 in May, before easing to 17 by Oct. 2.

Some bold pros snapped up shares the week after September 11, 2001--when the stock hit bottom. One of them was Bill Harnisch, president of investment managers Forstmann-Leff Associates, who had been shorting the stock way before September 11. When the market reopened on Sept. 17, he scooped up Amazon at 8 a share. He has been buying more at 15 to 17 a share. "Amazon is not only an Internet survivor but is also in control of its future--and on the way to profitability," he says. Harnisch expects the online retailer of books, music, and videos to be in the black by the fourth quarter. "If Amazon meets First Call consensus earnings estimates of 11 cents a share in the fourth quarter, the price will pop to 20 to 25." There are still many skeptics, he adds, but with Amazon's big infrastructure costs out of the way, it's reaping the benefits from rising sales.

Harnisch expects Amazon to beat consensus forecasts of 11 cents for the fourth quarter and 5 cents for all of 2002. For 2003, the consensus is 22 cents.

Harnisch thinks Amazon will beat that, too. But the big payoff, he says, will come in 2005, when he sees earnings leaping to 75 cents.

Jeetil Patel of Deutsche Banc Alex. Brown, who rates the stock a buy, says Amazon's Internet audience leaped from 23 million a year ago to 27.3 million in August, a 19% increase. And total usage jumped from 197 million minutes a year ago to 304 million, up 70%, says Patel. Heath Terry of Credit Suisse First Boston, who also rates Amazon a buy, says "incremental growth led by lower prices and improved unit growth" on a fixed-cost base will drive the stock higher.

By Gene G. Marcial

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