Why Morgan Stanley Expects Even More All-Time Highs for Amazon.com
January 7, 2013 by Jon C. Ogg
Amazon.com shares are trading up 3.5% at $268.40 and the company’s market cap is now over $121 billion. Morgan Stanley has raised its rating to Overweight from Equal-Weight. The new price target is $325, well above the $277.43 consensus price target from Thomson Reuters. It is worth noting that the street-high price target is $350 but that is not from a call today.
The report from Morgan Stanley was by Scott Devitt and Andrew Ruud calling Amazon an underappreciated and strategic asset that has much more market share to take. The team even lifted sales targets out all the way in 2015 to some $166 billion versus $145 billion previously expected.
If you think that this is not a growth story, consider that the Thomson Reuters consensus estimate is showing 29% sales growth in 2012 to just over $62 billion. The consensus sales growth target for 2013 is still about 27% to over $79 billion. Today’s research note is projecting that Amazon’s share of the global e-commerce market could rise from 14% last year up to about 24% by 2016.
Shares hit a high of $269.30 this morning and that is a new all-time high. Morgan Stanley expects those all-time highs to continue. What is amazing is that the $1.74 EPS estimate for 2013 from Thomson Reuters gives Team Bezos a forward P/E ratio of about 150.
The caveat here is obvious. Jeff Bezos has been spending money endlessly to capture more and more market share at the expense of the company’s gross margin. Amazon Prime is a large part of that drain against margins, but the company still has many sectors it has not even ventured into. Making an upgrade when the stock is at an all-time feels very late on the surface. Now we have to see if Amazon can live up to those grandiose expectations in the years ahead.
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