Why a $1,000 Amazon Analyst Stock Target Drove All-Time Highs

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The rise of Amazon.com Inc. (NASDAQ: AMZN) has been an incredible journey. Jeff Bezos and his team have disrupted more retail and consumer segments than anyone could have imagined, and the effort often ends up dominating a segment when they put their minds and efforts there. Amazon has acted as though it couldn’t care less if it loses money or breaks even while it boosts its footprint. Whether this is a call that is the last all-time high upgrade remains to be seen, but a week ago Amazon was being touted as a $3 trillion opportunity at the Sohn Conference.

On Tuesday came a new street high analyst price target for Amazon — all the way up at $1,000. Bernstein’s Carlos Kirjner was the analyst behind the call, and the prior target was a mere $770. Amazon’s prior street high analyst target was $915, and the consensus analyst price target was $793.56.

The AWS unit is of course a part here, but so is the retail segment. Kirjner now feels that Amazon’s first-part sales will grow faster than its lower margin sales. That is expected to drive the company’s margin higher as a result. Those margins should also grow much faster than other analysts have modeled into their projections. His view is that margins will expand much faster in the coming two years than they did in the prior two years.

One issue behind the exceeding projections is that the company’s units are now large enough that it is getting harder for Amazon to find new areas to spend endless amounts of money to get into. As these segments get more mature, their profits are expected to rise.

Amazon is also shown to be showing very little deceleration in the retail business, with much of that tied to the loyalty of the Amazon Prime effort.

Amazon is not being viewed for a short-term move here. The stock just doesn’t trade anywhere close to what Kirjner thinks its fundamental value is worth. His note signaled that he remains bullish in the short term, medium term and long term.

Tuesday’s upgrade was more coincidental with the news of a video competitor to YouTube (Amazon Video Direct).

Amazon shares were last seen up 2.7% at $698.50, and the new 52-week range after breaching $700 on Tuesday was $418.36 to $701.38.

In the first week of May, Jefferies was quite positive on Amazon with an $865 price target. Wedbush Securities has an Outperform rating and recently raised its target to $775 from $700 in its Amazon call. Other analysts were also quite positive after earnings as well.

Amazon’s first-quarter report came in with $1.07 in earnings per share (EPS) on $29.13 billion in revenue. Thomson Reuters had its consensus estimates at the time of only $0.58 in EPS on $27.98 billion in revenue.

Below is some brief reference to how Amazon reported strong earnings in April. As for its business segments, Amazon reported:

  • North America’s sales rose 27% to $17.00 billion.
  • International sales rose by 24% to $9.57 billion.
  • AWS net sales grew 64% to $2.57 billion.

Amazon’s guidance for the second quarter, issued with earnings in April, was as follows (versus consensus estimates of $0.99 in EPS on $28.33 billion in revenue):

  • Net sales in the range of $28.0 billion to $30.5 billion, up between 21% and 32%
  • Operating income to be in the range of $375 million to $975 million

CEO Jeff Bezos gave his official statement, which did actually sound like continued spending, as follows:

Amazon devices are the top selling products on Amazon, and customers purchased more than twice as many Fire tablets than first quarter last year. Earlier this week, the $39 Fire TV Stick became the first product ever — from any manufacturer — to pass 100,000 customer reviews, including over 62,000 5 star reviews, also more than any other product ever sold on Amazon. Echo too is off to an incredible start, and we can’t yet manage to keep it in stock despite all efforts. We’re building premium products at non-premium prices, and we’re thrilled so many customers are responding to our approach.