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Does Chicago Fit the Bill for Amazon's Second Headquarter?

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Chicago submitted its bid for Amazon.com, Inc.’s (AMZN - Free Report) second headquarter (Amazon HQ2) on Monday.

Last month, Amazon announced plans for another headquarter in North America that can accommodate approximately 50,000 employees. It will spend $5 billion for it.

The list of cities showing interest has been expanding since then. So far, American cities in the race include Chicago, IL; Baltimore, MD; Arlington, VA; Denver, CO; Dallas, TX; Kansas City, MO; Minnesota; Philadelphia, PA; Nashville, TN, Indianapolis, IN; San Antonio, TX; St. Louis, MO and Pittsburgh, PA.

We take a look at what the Chicago has to offer as a potential Amazon HQ2 location.

Amazon’s Preference

Amazon prefers urban or suburban but metropolitan locations, home to more than 1 million people, offering a stable and business-friendly environment, real estate options and with resources to attract strong technical talent.

Amazon.com, Inc. Revenue (TTM)

The location need not have to offer an urban or downtown campus, a layout resembling Amazon’s Seattle campus or a development-prepped site. Notably, Amazon has stressed on “communities that think big and creatively when considering locations and real estate options.”

We observe that Amazon shares have gained 34.2% year to date, underperforming the 52.8% rally of the industry it belongs to.

Chicago’s Offerings

According to Governor of Illinois, Bruce Rauner, “Chicago offers unparalleled potential for future growth for businesses of all sizes and is the ideal place for Amazon to build its HQ2.” “This bid will demonstrate to Amazon that Chicago has the talent, transportation and technology to help the company as it reaches new heights and continues to thrive for generations to come,” he added.

We observe that Chicago has what it takes to meet Amazon’s criteria. The city has two international airports — O'Hare and Midway —with around 1,450 daily direct flights to more than 245 destinations.

But factors that could really help Chicago leave other cities behind in the race are a functional mass transit system, a commercial real estate market and the ability to attract real talent through top universities. In terms of wages and real estate costs, Chicago is a low-cost alternative to several coastal cities.

Amazon already has an association with Chicago. The company’s downtown Chicago office houses 200 employees and has been expanded recently to house 200 more. Its distribution centers are spread throughout the city and the state.

To Conclude

No matter which city Amazon picks, HQ2 will have a huge positive impact on its economy. Amazon in its press release notes that from 2010 to 2016, the company’s investments in Seattle have generated an economic impact of $38 billion in the city. That’s an additional $1.4 against each dollar invested in Seattle by Amazon.

City and state heads are surely eyeing a repetition of Amazon’s economic impact on Seattle in their own areas and thus have started to gear up to grab the opportunity.

Currently, cities and states are trying to attract technology companies as they bring in huge employment opportunities and other businesses, thus boosting the overall economy. They are ready to give away massive benefits mainly in the form of tax breaks as they know that economic development often outweighs loss in tax.

Zacks Rank and Stocks to Consider

Amazon has a Zacks Rank #5 (Strong Sell).

Better-ranked stocks in the broader technology sector include Micron Technology, Inc. (MU - Free Report) , Applied Materials (AMAT - Free Report) and Jabil Inc. (JBL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings per share growth rate for Micron, Applied Materials and Jabil is projected to be 10%, 17.1% and 12%, respectively.

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