Zacks Analyst Blog Highlights: Amazon.com, D.R. Horton, Berkshire Hathaway and Masco

CHICAGO, April 27, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Amazon.com (Nasdaq: AMZN), D.R. Horton (NYSE: DHI), Berkshire Hathaway (NYSE: BRK.B) and Masco (NYSE: MAS).

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Here are highlights from Tuesday's Analyst Blog: 

Amazon Posts Big Earnings Miss

Today after the closing bell, Amazon.com (Nasdaq: AMZN) posted mixed results for
its fiscal 1st quarter 2011. Quarterly revenues of $9.86 billion beat the
Zacks Consensus Estimate of $9.5 billion, but EPS missed badly -- 44 cents
per share as opposed to the 60 cents per share in the Zacks Consensus.

This marks the first negative earnings surprise for Amazon.com since the
2nd quarter of 2010. But today's number was a doozy -- a 36.36% negative
surprise takes the four-quarter average to -11.59%. Further, analysts had
drastically revised earnings estimates downward at the beginning of the
quarter. Thus, AMZN stock -- which was already trading down in Tuesday's
regular session by 1.68% to $182.30 -- took an initial hit in the
after-market.

Increased spending on infrastructure and into growing markets has
apparently taken a much bigger bite out of Amazon.com's bottom line in the
quarter, but the beat on revenues looks to be a genuine silver lining.
$9.86 billion not only easily topped the Zacks Consensus, but is 38%
higher than the $7.13 billion posted in the year-ago quarter. And in a
growth industry, figures like this can make up for a lot of perceived
disappointment elsewhere.

This was not expected to be a strong quarter for Amazon. Costs were
expected to hit profits harder (though clearly not by this much), Amazon
has exposure to Japan's issues, among other things, but the growth in the
company's top line is the positive takeaway from this mixed report. This
may explain why AMZN shares are not bearing the brunt of a drastic
sell-off in late trading today.

Guidance for the 2nd quarter is roughly in-line with the Zacks Consensus
at this time. Amazon.com expects earnings of 57 cents a share on revenues
of $8.74 billion. Amazon currently has a Zacks #3 Rank (Hold), which
corresponds with a longer-term Neutral recommendation.

Home Prices Still Falling

It is existing home prices, not the volume of turnover that is important.
The level of existing home sales is only significant relative to the level
of inventories, since that provides a clue as to the future direction of
home prices. If there is an excess inventory of existing homes, then it
makes very little sense to build a lot of new homes.

It is the building of new houses that generates economic activity. It is
not just about the profits of D.R. Horton (NYSE: DHI). A used house being sold
does not generate more sales of lumber by International Paper (IP) or any
of the building products produced by Berkshire Hathaway (NYSE: BRK.B) or Masco
(NYSE: MAS). Turnover of used homes does not put carpenters and roofers to work.
New homes do.

Existing home prices, on the other hand, are vital. Home equity is, or at
least was, the most important store of wealth for the vast majority of
families. Houses are generally a very leveraged asset, much more so than
stocks. Using your full margin in the stock market still means you are
putting 50% down. In housing, putting 20% down is considered conservative,
and during the bubble was considered hopelessly old fashioned.

As a result, as housing prices declined, wealth declined by a lot more.
For the most part we are not talking vast fortunes here, but rather the
sort of wealth that was going to finance the kids' college educations and
a comfortable retirement. With that wealth gone, people have to put away
more of their income to rebuild their savings if they still want to be
able to send the kids to college or to retire.

The decline in housing wealth is a very big reason why retail sales have
been so weak. With everyone trying to save, aggregate demand from the
private sector is way down. If customers are not going to spend and buy
products, employers have no reason to invest to expand capacity. They have
no reason to hire more workers.

People pulling money out of their houses was a big force behind what
growth we had during the previous expansion. Mortgage equity withdrawal,
also known as the "housing ATM," often accounted for more than 5% of
Disposable Personal Income during the bubble, thus greatly lifting
consumer spending. Since the bubble popped, people have been on balance
paying off their homes (or defaulting on them through foreclosures).

The comparison of the next two charts shows how important housing wealth
is to the middle class. The first graph includes home equity wealth, the
second looks only at financial assets like stocks. The upper middle class
(50 to 90% income brackets) had 26% of the total wealth in the country in
2007, and just 9.3% of the wealth in the form of financial assets. The
value of non-financial assets, mostly home equity, has declined
significantly since 2007, and with it the wealth of the middle class.

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