The Case for Amazon to Rise Yet Another 40%

Print Email

Shares of Amazon.com Inc. (NASDAQ: AMZN) saw a handy gain on Monday ahead of the earnings report due this week. One key analyst also issued a call for the stock to rise even higher, matching the highest official Thomson Reuters sell-side analyst price target on Wall Street.

Wedbush reiterated an Outperform rating and raised its price target to $1,250 from $900, compared with the most recent closing price of $898.53. This target also implies nearly 40% in upside from the current price level.

The firm expects Amazon to continue delivering substantial earnings growth, tempered by spending on new initiatives. Amazon appears intent upon growing annual profits (with some quarterly volatility), which Wedbush expects to continue as the company invests in growth. Amazon Web Services (AWS) should be the growth engine, with its gross and operating margins expanding rapidly.

The mix of Fulfillment by Amazon (FBA) should drive further gross margin expansion, and international Prime membership growth is expected to drive overall retail revenue. Operating margin expansion likely will be tempered somewhat by increased spending on video content, fulfillment and international expansion; however, the trajectory is clear and the company’s investment strategy purposeful.

Wedbush maintained its 2017 estimates while introducing 2018 estimates. The firm now expects 2018 revenue of $207 billion, operating income of $8.2 billion and earnings per share (EPS) of $10.73. The consensus estimates call for $12.44 in EPS and $199.44 billion in revenue in 2018.

In its report, Wedbush further commented on its expectations for the first quarter:

We expect Q1 revenue of $35.97 billion, compared to consensus of $35.30 billion and guidance of $33.25 — 35.75 billion, driven by strong growth of Prime memberships, solid sales of Amazon-branded products, and AWS growth. We expect operating income of $1.06 billion vs. consensus’ $900 million and guidance of $250 — 900 million. Spending on film and TV content appears to have accelerated, as well as investment in additional fulfillment centers, fresh food and restaurant delivery, and AWS products and features. We expect these new investments to be funded by the expansion of high growth, high margin categories (AWS and FBA). We expect Q1 EPS of $1.30 vs. consensus of $1.13.

Shares of Amazon were trading up 1% at $908.11 on Monday, with a consensus analyst price target of $975.69 and a 52-week trading range of $599.20 to $923.72.