Amazon stock could hit $4,700 in the next year as revenue growth and higher margins drive estimate revisions into the second half of 2022, according to UBS analysts.
It hasn’t been a smooth year for Amazon (ticker: AMZN) and its third-quarter earnings highlighted a number of problems, including supply-chain issues, higher wage costs and tough comparisons with 2020, a bumper year for the company. The stock is up around 6% year-to-date, compared with the S&P 500‘s 20% gain.
Yet, UBS analysts think 2022 could be another blockbuster year for the stock.
The Swiss bank assumed coverage of the technology giant with a Buy rating and a 12-month price target of $4,700, up from its previous target of $4,020.
The new target price, one of the highest on Wall Street, implies a 36% upside to Amazon’s closing price of $3,443.72 on Wednesday. The stock edged higher in premarket trading Thursday.
“We expect Amazon shares to re-rate ahead of 2H22 when we see revenue growth and higher margins driving estimate revisions and multiple expansion,” analysts, led by Lloyd Walmsley, said in a note.
They noted that Amazon has “multiple levers” to improve margins, including advertising, Amazon Web Services (AWS) and price rises. Slowing capacity builds and higher pricing could lead to better-than-expected margin inflection in the second half of next year, they added.
Amazon is raising fees for third-party sellers using its Fulfillment by Amazon (FBA) service from the beginning of the 2022. UBS analysts said the e-commerce giant could follow that with price increases for its Prime offering, after two years of heavy investment. Since the last rise in 2018, Amazon has moved to 1-day Prime delivery, expanded same-day delivery, and invested billions into Prime video content on its streaming platform, they said. “Higher Prime and FBA prices could contribute $8 billion to $30 billion to revenue and $8 billion to $26 billion Ebit annually, most of which is not in our estimates.”
Even without big price rises between 2021 and 2023, they said Amazon will benefit from an incremental $12 billion of AWS earnings before interest and taxes and $15 billion of incremental advertising Ebit.
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