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Amazon stock price target raised on advertising growth, cost leverage

EditorNatashya Angelica
Published 04/22/2024, 12:41 PM
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On Monday, MoffettNathanson has adjusted its stock price target for Amazon.com (NASDAQ:AMZN), raising it slightly to $230.00 from $228.00, while reiterating a Buy rating on the stock. The firm's optimism is driven by a combination of factors including growth in advertising, improved cost management, and expansion of first-party (1P) gross margins.

The analyst at MoffettNathanson cited a significant revision in Amazon's fiscal year 2024 (FY24) consensus EBIT estimates, which have increased by 60% over the past twelve months, outpacing the S&P 500's growth of 20%. These revisions reflect the strong performance of Amazon's equity, which has seen a 64% increase in the same period.

The basis for the firm's positive outlook on Amazon includes the expectation of continued growth in the company's advertising revenue, leveraging costs to serve, and expansion of 1P gross margins.

The analyst highlighted that Amazon's advertising business is projected to have a compounded annual growth rate (CAGR) of 20% through 2026, supported by growth in onsite ads and non-core advertising. This growth in advertising is expected to contribute significantly to Amazon's EBIT, potentially increasing from $26 billion in FY23 to $41 billion in FY26.

Furthermore, MoffettNathanson anticipates that Amazon's cost to serve will benefit from an underutilized fulfillment footprint and a regionalized network, suggesting that a return to pre-COVID cost structures could lead to a 35% upside to consensus EBIT estimates for FY26.

Moreover, the analyst expects that the headwinds faced by Amazon's 1P business, such as inflation and retail inventory corrections that have compressed margins, will turn into tailwinds in 2024, potentially improving gross profit by around $2 billion.

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As a result of these factors, the firm has increased its EBIT estimates for Amazon by 1% for FY24 and 3% for FY25, positioning them 11% and 6% above the consensus, respectively. The updated price target reflects these revised estimates and a continued endorsement of Amazon's stock with a Buy rating.

InvestingPro Insights

Complementing the positive outlook from MoffettNathanson, Amazon.com (NASDAQ:AMZN) also presents an intriguing profile according to InvestingPro metrics. Currently, Amazon is trading at a high earnings multiple with a P/E ratio of 59.02, which is reflective of the market's expectation of future growth.

The company's status as a prominent player in the Broadline Retail industry is undisputed, and its high return over the last year, with a 63.27% one-year price total return, underscores its strong market performance.

InvestingPro data further indicates that Amazon operates with a moderate level of debt, which is a positive sign for investors concerned about financial stability. Moreover, analysts predict the company will be profitable this year, a sentiment backed by Amazon's profitability over the last twelve months. The company's revenue growth remains robust, with an 11.83% increase in the last twelve months as of Q1 2023, and a quarterly revenue growth of 13.91% in Q1 2023.

For investors looking to delve deeper into Amazon's financial health and future prospects, InvestingPro offers additional tips and insights. There are 11 more InvestingPro Tips available for Amazon, which can be accessed through the InvestingPro platform.

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This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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