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Is 2020 the Breakout Year for Amazon?

Chris Lange

Amazon.com Inc. (NASDAQ: AMZN) is scheduled to release its fourth-quarter financial results after the markets close on Thursday. The consensus estimates call for $4.03 in earnings per share (EPS) and $86.02 billion in revenue. The same period of last year reportedly had $6.04 in EPS and $72.38 billion in revenue.

Amazon has been a market darling — or the Death Star, depending on the industry — for a while now. Although Amazon stock has not kept pace with markets over the past year, Merrill Lynch issued a call earlier this month that suggests big upside in the stock.

Merrill Lynch reiterated a Buy rating and raised its price target to $2,330 from $2,160, which implies upside of 23% from the most recent closing price of $1,891.30.

According to the brokerage firm, Amazon has strong growth prospects in 2020, with improving delivery capabilities and still low cloud penetration. Merrill Lynch noted that Amazon remains earliest in its penetration curves among the FANG stocks, with a positive revenue mix shift for margins.

Merrill Lynch set its 2020 full-year estimates at $329 billion in revenue and $45 billion EBITDA, which compares to the consensus forecast of $330 billion in revenue and $49 billion in EBITDA. While Amazon should generate $4.7 billion of incremental profit from AWS and advertising growth to work with in 2020, the firm thinks investment in free one-day shipping (plus investment in retail/grocery) will be deeper than street estimates. While first-quarter guidance could be a risk, Merrill Lynch thinks investors will see the margin bottom and that the stock starts to gain momentum in the spring.

Investment positives for Amazon in 2020 were as follows:

1) Amazon’s eCommerce and Cloud position is strong, with both markets still very early on penetration curves; 2) Our survey results show Amazon has a big lead at the top-offunnel for eCommerce, and churn intentions remain low; 3) Free One-Day shipping accelerates unit & GMV growth, with grocery also ramping; 4) Both AWS and retail margin comps ease significantly in 2Q/3Q 2020; and 5) New categories & shipping opportunities opening up, driven by local fulfilment build.

Overall, Amazon stock has underperformed the broad markets with a gain of over 16% in the past 52 weeks. In the past quarter alone, the stock is only up about 4.5%.

A few other analysts weighed in on Amazon prior to the release:

  • Deutsche Bank has a Buy rating with a $2,275 price target.
  • BMO Capital Markets has a Positive rating with a $2,150 target.
  • Wedbush rates it as Outperform with a $2,000 price target.
  • Jefferies has a Buy rating.
  • Barclays also has a Buy rating.
  • Stifel has a Buy rating and a $2,150 target price.
  • Pivotal Research’s Buy rating comes with a $2,250 target.
  • UBS has a Buy rating with a $2,305 price target.

Shares of Amazon traded at $1,855.29 on Thursday, in a 52-week range of $1,566.76 to $2,035.80. The consensus price target is $2,191.96.