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Why, Inc. Slipped This Morning

By Brian D. Pacampara, CFA – Feb 12, 2014 at 10:25AM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of (AMZN -1.44%) slipped 1.5% this morning after UBS downgraded the Internet retail gorilla from buy to neutral.

So what: Along with the downgrade, analyst Eric Sheridan lowered his price target to $375 (from $450), representing about 4% worth of upside to yesterday's close. While contrarians might be attracted to the stock's late-January pullback, Sheridan thinks that Amazon's appreciation prospects remain limited given the surprisingly negative results of its recent consumer survey.

Now what: According to UBS, Amazon's risk/reward trade-off is pretty unattractive at this point. "Our survey results call into question our prior views about the value that a broad set of consumers are applying to the current iteration of Amazon Prime," noted Sheridan. "If Amazon were to raise Prime fees, such a fee increase might need to be accompanied by either a) a higher level of value in the service offering (additional media content, streaming music and/or Fresh (supermarket) offerings) and/or b) an increased level of marketing around the perceived value of Prime to the general public." Of course, with Amazon now off about 15% from its 52-week highs, those concerns might be providing long-term Fools with a high-quality growth opportunity.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned Stock Quote
$94.13 (-1.44%) $-1.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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