The remarkable Covid-19-driven rally in Amazon.com shares shows few signs of relenting.
Driven by the strengths in its cloud computing and e-commerce segments, Amazon (ticker: AMZN) has come to play a crucial role in the lives of consumers and enterprises alike. That revelation has triggered a year-to-date rally of more than 60%.
With earnings due by the end of the month, Wall Street has begun to take a closer look at both the direction of Amazon’s shares and quarterly results that offer a wider range of possible outcomes than is generally the case. In reporting March-quarter results, the company said it could spend all of its profits and then some on projects related to Covid-19 testing and safety.
Analyst consensus calls for June-quarter revenue of $80.7 billion and profits of $1.34 a share, but the Street’s estimate ranges are wide for both the top and bottom lines.
Stifel analyst Scott Devitt on Thursday repeated his Buy rating on Amazon shares, while lifting his price target to $3,300, from $2,600. “Amazon stands as a primary beneficiary of the shift in consumer shopping behavior stemming from the pandemic,” he writes in a research note. “The slower than previously expected reopening of the economy is positive for Amazon’s competitive positioning versus traditional retail and increases the likelihood recent changes in consumer behavior are permanent.”
Devitt raised his long-term estimates, but notes that in the short run, “increased investment and safety-related costs may limit margin upside as the company increases warehouse and logistics capacity to service elevated order volumes.”
Morgan Stanley analyst Brian Nowak likewise on Thursday repeated his Overweight rating while raising his target on the stock to $3,450, from $2,800.
Nowak offers four reasons for his more aggressively bullish posture. One, he has raised his estimates on the growth of Amazon’s e-commerce business to reflect faster overall growth in the U.S. e-commerce sector overall. Two, he sees faster growth as well from the company’s e-commerce business outside the U.S. Three, he expects an acceleration in Amazon’s advertising business. And four, he sees growth in the company’s higher margin businesses—including AWS, advertising and Prime subscriptions—driving up profitability.
Nowak says Amazon remains his top pick, and asserts that strong top-line and profit growth can continue to drive multiyear stock performance, even with some earnings multiple compression.
Amazon shares on Thursday were down fractionally, at $3,007.25.
Write to Eric J. Savitz at eric.savitz@barrons.com
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July 17, 2020 at 02:10AM
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Amazon Shares Have Had a Huge Run. Here’s Why the Rally Can Continue. - Barron's
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