Amazon (AMZN) Announces Pricing Of Senior Notes Worth $16B

The world’s largest online retailer, Amazon.com Inc. (NASDAQ:AMZN) , recently announced a private offering of bonds aggregating $16 billion.

According to Informa Global Markets, this is the fourth largest high-grade debt offering of 2017. These bonds have been issued in seven tranches of different amounts and maturities, ranging from three-year notes to 40-year notes.

Bank of America Merrill Lynch (NYSE:BAC), Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) will act as lead underwriters for the offering.

Price Movement

Amazon is one of the leading players in the extremely fast-growing retail ecommerce market and its strength lies in its huge scale of offerings, its broad reach and platform approach.

However, Amazon has underperformed the industry on a year-to-date basis. During this period, the company’s shares have increased only 30.4%, lower than the industry’s gain of 46.4%.

The underperformance could be due to a spike in operating expenses as a result of buildout of fulfillment centers in preparation for the holiday season. The company’s increased spending on original TV shows and movies and offline retail has also been impacting its profits.

Reason for the Debt Issue

Amazon stated that the transaction proceeds will be used to fund its acquisition of Whole Foods Market, Inc. The amount will also be used to repay its 1.200% notes due 2017, and for general corporate purposes.

In June, Amazon had announced that it had reached a deal to acquire leading natural and organic foods supermarket, Whole Foods Market, Inc. (NASDAQ:WFM) for $13.7 billion. The deal, which is expected to conclude in the second half of this year, will open a window of opportunities for Amazon in the retail market. The deal will also help it counter competition, if it manages to get a first-mover advantage.

Amazon’s Cash Position

As of Jun 30, 2017, the company had total debt of $7.7 billion. Its cash equivalents and marketable securities balance were almost $21.45 billion, slightly down from the prior quarter. Also, the company generated $3.8 billion of cash from operations, spending $2.5 billion on fixed assets (including internal-use software and website development costs) and $633 million on acquisitions. Principal repayments of capital lease obligations were $1.2 billion in the second quarter.

The new debts will carry a fixed rate of interest and will help the company to lower interest burden compared with the floating rate in the credit facility.

Zacks Rank and Stocks to Consider

Currently, Amazon has a Zacks Rank #5 (Strong Sell). A few better-ranked stocks in the same space are Lam Research Corporation (NASDAQ:LRCX) , carrying a Zacks Rank #1 (Strong Buy) and Applied Materials (NASDAQ:AMAT) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research delivered a positive earnings surprise of 4.44%, on average, in the trailing four quarters.

Applied Materials delivered a positive earnings surprise of 3.35%, on average, in the trailing four quarters.

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