Deutsche Bank says it hasn't seen this level of 'caution around Amazon shares' in a long time - but Wall Street remains bullish about the company ahead of its fourth quarter earnings report

• Amazon's stock has underperformed the broader market and its peers over the past year.
• Amazon is expected to report slower revenue growth and shrinking profit margins when it reports fourth quarter earnings on Thursday after the bell.
• Still, Wall Street analysts remain more bullish than ever about Amazon's future prospects.
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Amazon's slowing growth and shrinking profit margins are keeping investors on their toes. But Wall Street analysts remain more bullish than ever, ahead of the company's fourth quarter earnings report on Thursday.

In a note published on Wednesday, Deutsche Bank wrote that Amazon's recent stock performance reflects the investor concerns around the company's growth slowdown, despite having invested billions into expanding its shipping and cloud businesses last year. Amazon's stock is trading roughly flat this year, lagging its peers like Apple (up about 11%), Alphabet (up 9% or so), and Microsoft (up about 8%). In 2019, it underperformed the broader market for the first time in 5 years.

But Deutsche Bank remains upbeat about Amazon's future prospects, saying it's an opportunity to buy its stock at the current price. The financial firm, in fact, just raised its price target to $2,275 per share, citing healthy online shopping demand and continued strong growth from Amazon's AWS cloud unit.

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"We have not seen this much caution around Amazon shares in a long time," Deutsche Bank wrote in the note. "Thus despite our concerns, we think the risk/reward looks compelling at current levels."

Deutsche Bank isn't alone when it comes to recommending Amazon's stock. Among the 50 analysts that track Amazon, 47 have a "buy" rating, 3 have a neutral "hold" rating, while none of them recommend selling the stock. That's more buy ratings than any other S&P 500 company, according to FactSet.

'Top pick'

The bullishness comes amid expectations of a growth slowdown and smaller profit margins when Amazon reports its fourth quarter earnings on Thursday.

Analysts expect revenue of $86 billion, up 19% from the year-earlier period, according to FactSet's consensus estimates. That would be a drop from the 20% expansion seen during the same period of last year and the 24% growth rate of the previous quarter.

Meanwhile, Amazon's huge investment in one-day delivery is expected to keep cutting into its profit margins, resulting in operating income of $2.7 billion for the quarter, down from the year-ago period's $3.8 billion, according to FactSet. Amazon announced last year that it would spend roughly $3 billion to shorten its standard delivery time from two days to a single day.

Here's what Wall Street is expecting for the quarter:

• EPS: $4.04, according to analysts surveyed by FactSet, vs. $6.04 last year

• Revenue: $86.0 billion, according to FactSet, vs. $72.4 billion a year ago

• Amazon Web Services: $9.8 billion, according to analysts surveyed by FactSet, vs. $7.4 billion last year

Youssef Squali, an analyst at SunTrust Robinson Humphrey, wrote in a note last week that Amazon remains his "top pick" for the year. He wrote Amazon's quicker delivery time and maturing cloud business are expected to revive the company's growth in the coming months.

"Amazon remains a top pick for us for 2020 as we believe the market is not adequately accounting for the full potential of 1-day shipping in [2020 and 2021] revenue growth, while expectations for AWS have been reset to more achievable levels," Squali wrote in the note.

Still, investors are watchful of Amazon's spending rate as it keeps rolling out one-day shipping to more products and expands its footprint in data centers to power its dominant Amazon Web Services cloud computing platform. The continued deceleration of AWS, although expected at its current size, is a major concern for some investors, as its sales growth is forecast to dip below 30% for the first time this year.

"We think the key question for Amazon right now is how long incremental one-day shipping investment lasts beyond early April, when it laps the year-ago kickstart," BMO Capital's Dan Salmon wrote in a note this week. "We think AWS should continue to grow 24%-plus annually for the next two years, and we see margins re-expanding in 2020 after declining due to investment spending in 2019."