Amazon Stock has had a tough year. Why JP Morgan sees big gains ahead.
stocks have been under pressure lately, down around 11% since the e-commerce and cloud computing giant released its June quarter results on July 29, underperforming the decline of 3 % on the
during the same period.
The company has been beset by a myriad of concerns about its core online retail business, and this is an opportunity for intrepid investors.
In a research note Tuesday, JP Morgan analyst Doug Anmuth examines the issues hanging over
shares (ticker: AMZN) and concludes that the shareholding logic remains intact. It repeats its overweight rating and price target of $ 4,100, a potential return of 30% from recent levels.
Amazon shares are up 1.8%, to $ 3,248, in recent trading. The
is up 1.3%.
Anmuth sees that there are four key issues for Amazon investors.
For starters, there are concerns about decelerating revenues in the second half of the year, given last year’s tough comparisons and a more general slowdown in e-commerce spending growth in the United States. He notes that Chase’s credit card spending data confirms the recent deceleration, but adds that the numbers appear more stable on a two-year basis. It sees Amazon reporting 12% third-quarter gross merchandise value growth and 8% fourth-quarter growth, with company-wide revenue of $ 111 billion, up 15 billion dollars. %, in the third quarter, and $ 138 billion, up 10%, in the fourth. quarter, driven by strong growth in both cloud computing and advertising revenue.
Amazon forecast $ 106 billion to $ 112 billion in revenue for the September quarter.
Another concern, according to Anmuth, is the potential impact on Amazon’s ability to deliver products given supply chain disruptions, “with more than 60 ships off the coast of Los Angeles and rates of freight on the rise “. But he believes some of the disruption is already reflected in both the third-quarter forecast and Street’s estimates for the fourth quarter. And he adds that Amazon has brought forward the inventory count schedule ahead of the holiday season to help alleviate the disruption.
Meanwhile, Amazon continues to invest heavily in its logistics business. Anmuth believes the company will add 30% to 40% to its warehouse network in 2021, while also expanding its transportation development. He adds that the investment “suggests Amazon remains optimistic about long-term demand and future growth.”
The other question investors face, writes Anmuth, is what will kick-start the stock. He believes the âcurrent prudenceâ works through inventory and that some will want to own Amazon before the holidays. He also notes that Amazon is set to beat the toughest comparisons of the Covid period. Anmuth believes some of Street’s earnings estimates are too high and likely to be lowered, but sees this lowering the bar and potentially acting as a “compensation event” for the stock. And he also sees a potential Amazon Prime price hike in 2022 pushing up the stock.
âWe recognize the short-term concerns and uncertainty over the next few months, but we believe there is still a significant secular shift towards e-commerce to come and Amazon has a very good track record of investing in it. future growth opportunities, âhe writes. Anmuth notes that the stock is trading less than 15 times its lower than 2023 consensus estimate for EBITDA, or earnings before interest, taxes, depreciation and amortization, and finds the stock offers investors a “compelling opportunity.”
Write to Eric J. Savitz at [email protected]