Is Wall Street Getting Too Far Ahead of Amazon & Jeff Bezos
It is without question that the COVID-19 pandemic delivered a deep recession to America and the rest of the world in 2020. It is also without question that some companies are navigating the treacherous economy just fine. Companies like Amazon.com, Inc. (NASDAQ: AMZN) are not just navigating — they are thriving.
Amazon shares are now up a whopping 65% year-to-date. The move sounds almost impossible to fathom considering the depth of the recession and how high unemployment went. At least that’s the thought until you consider how Amazon has been uninterrupted in delivering its packages all around America, and the hires and upgrades the company has been undertaking to make sure that its leads the class of essential businesses. Amazon’s cloud business has also been deemed to be a major winner with more and more businesses needing its Amazon Web Services (AWS).
Shareholders are supposed to look forward rather than just concentrate on the past. This leaves a big debate here after a 65% gain in its shares. Has Amazon’s great gains priced in all of its upside and then some?
Wall Street analysts have been increasing their target prices so much that it has become hard to keep up with. Monday’s analyst calls included BofA reiterating its Buy rating and raised its price objective to $3,280 from $3,000. Wedbush Securities reiterated its Outperform rating and raised its target price to $3,500 from $3,050.
Just last week there were other big price target hikes. Credit Suisse also reiterated its Outperform rating and raised its target to $3,400 from $2,760. KeyBanc Capital Markets reiterated its Overweight rating and raised its target to $3,285 from $2,700. Also last week target hikes were seen with MKM Partners raising Amazon’s target to $3,350 from $2,525 and with Morgan Stanley raising its target to $3,450 from $2,800.
The consensus analyst target price from Refinitiv was last seen at $3,055, but the targets just keep getting raised. Prior to the last few days, July alone saw price target hikes from the likes of Goldman Sachs and Jefferies (now both at $3,800), Cowen (now $3,700), Citigroup (now $3,550) and Robert W. Baird (now $3,300). And similar waves of hikes were seen from some of the exact same firms in June.
Again, just how much good news is being priced in?
One issue to consider about how much stress there has been inside companies with essential and nonstop operations is that Amazon had to delay its self-created 2020 Prime Day. And 24/7 Wall St. brought up valuation concerns on Amazon and other top tech leaders on July 14 when the stock was above $3,100 and its consensus analyst target was $2,834.00 at the time.
Perhaps the biggest issue to consider right now from would have been straight from the mouth of Jeff Bezos. When Amazon reported its first quarter earnings in late April, the company warned that it was going to chew through what should have amounted to massive profits. Amazon had been on a major hiring spree, pay hikes during the pandemic, safety efforts and so on. And buried in the longer than normal Bezos quote, he warned:
Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.
And also this week there are expected to be congressional hearings about how each of the major tech giants in America are conducting business which could all lead to more regulations, more oversight, and potentially even a breakup of some of America’s top tech companies in the most extreme arguments.
And for this week’s top tech titan earnings previews, Amazon is expected to report its second-quarter results after the markets close Thursday. The consensus analyst estimates as of the weekend were $1.32 in earnings per share (EPS) and $81.1 billion in revenue. With normalized earnings of $20,00 per share in 2020 (versus $23.01 EPS last year), Amazon is valued at close to 150-times expected earnings (or about 81-times expected 2021 earnings).
The last issue to consider is that the post-earnings reactions have been less than remarkable in some of the top tech and darling stocks. Earnings reports from Netflix, IBM, Intel, Microsoft and Tesla were all pretty good, but either for valuation or other accompanying news the market sold those shares off after their reports.
Amazon’s stock ended the prior week at $3,008.91 and it was up at $3,055.21 as of Monday’s closing bell. What is even more amazing than the 65% gain based on the most recent close is that Amazon shares briefly traded as high as $3,344.29 on July 13.
It’s easy to understand why investors want to own Amazon for the long haul now. What might have taken years to unfold was just realized in six months under a pandemic. Even the most bullish Amazon investors looking for a huge bump just because of an earnings report that the company already warned was going to be an “investment quarter” rather than an earnings quarter might want to consider all of the good news that might already be priced into Amazon’s future.