Citi Upwardly Revises the Price Target of Amazon to $3,550

Citi Upwardly Revises the Price Target of Amazon to $3,550
July 13, 2020

 

The shares of Amazon.com (Nasdaq: AMZN) garnered the market’s attention on Friday after Jason Bazinet, an analyst at Citi upwardly revised the stock’s one-year target price to $3,550, from $2,700, against the backdrop of the COVID-19 led supremacy in e-commerce business. The analyst also maintained a “buy” rating on the stock. Following the report on the upward revision of the target price, the stock closed at $3,200, up $17.37 or 0.55% from Thursday’s close.  The stock has risen by 26% last month and trades above the average price target of Wall Street analysts. It is quite unusual to see Amazon trade above analysts’ price targets.

The latest price target implies a premium of about 30% from Friday’s closing price. If the forecast made by Bazinet turns out to be accurate, Amazon will command a market valuation of $1.80 trillion, higher than Microsoft, Apple, Alphabet (Google’s parent company), and Saudi’s Aramco. Currently, Amazon has a market cap of $1.596 trillion. So, the upward revision implies that the analyst anticipates Amazon to become the most valuable enterprise worldwide. The company has been the darling of Wall Street, which explains the reason for the high valuation. Over 90% of analysts have given a ‘buy’ rating for the company.

Jason Bazinet, in a note to clients, has stated that he continues to anticipate aggregate retail sales to “be only 1% above 2019 levels in 2022. However, his team expects online sales to grow 43% and brick-and-mortar retail sales to decline by 4%. Such a scenario clearly favors Amazon. The Citi analyst anticipates Amazon to have a 43% market share of the US e-commerce market in 2022, up from 38% in 2019, and roughly 7% of overall US retail sales during the same period, an increase from the 4% recorded last year. According to Bazinet, the increasing market share reflects “a powerful, long-term tailwind.”  

The COVID-19 outbreak has clearly segregated online and brick-and-mortar vendors, specifically in the apparel industry, with companies such as J.C. Penney, Neiman Marcus, Brooks Brothers and J.Crew filing bankruptcy protection even as their e-commerce business continue to generate decent revenue.

Amazon has come out as an undisputed winner of the pandemic, with the cloud titan’s stock appreciating roughly 90% from the low recorded in mid-March.

In a separate note, Deutsche Bank analyst Lloyd Walmsley has mentioned that Amazon is a “clear winner” from unexpected changes caused by the COVID-19. Walmsley also believes that consumers would continue their purchases via Amazon’s platform at higher levels even after easing of lockdown restrictions. Based on the aforesaid arguments, Walmsley has upwardly revised the target price of Amazon to $3,333, from the current level of $2,750. Notably, a Deutsche Bank survey found that shoppers rate Amazon higher than its competitors, including eBay (EBAY), Walmart WMT (WMT), and Target (TGT), in the e-commerce business.

Baird analyst Colin Sebastian also echoes the view of Jason Bazinet and Lloyd Walmsley. Colin Sebastian said, “Our revised Q2 revenue estimate of $85.2 billion (34%-plus year-over-year) is above consensus of $80.8 billion – we are modeling 40% growth in Online stores (vs. 24%-plus in Q1), 40% growth in Advertising, 35% growth in 3P seller services, 33% growth in AWS, 32% growth in Retail Subscriptions and 10% growth in Physical Stores.”

Nevertheless, the outbreak of COVED-19 has increased the operational expenses of Amazon. Sebastian believes that the company’s “greater marketing efficiencies” will partially offset the costs. Furthermore, the analyst expects “lower ad prices, lower ad spend in some areas and high levels of repeat purchase activity” as positives that will counter the rise in employee count.

While confirming the ‘Outperform’ rating, the Baird analyst raised the target price to $3,300, an increase from $2,700.

On June 26th, Amazon revealed that it is acquiring the autonomous vehicle technology development firm Zoox in a $1.30 billion cash deal. Under the takeover agreement, Zoox can walk away in case a large number of its employees decline Amazon’s job offer. Therefore, in order to retain the 900 plus staff of the Silicon Valley company, Amazon revealed its plan to establish a $100 million stock award program. Zoox, which is valued at $3.20 billion in 2018 by PitchBook, has been spending over $30 million per month this year and forecast to be out of money this month. As per the takeover deal, Amazon will lend $30 million to Zoox. The takeover deal also has a provision to extend additional loans in the months ahead.

The confirmation of ‘buy’ rating and upward revision of the price target are expected to keep the stock of Amazon bullish in the short-term.

Technically, the stock continues to move with little resistance, as shown in the price chart below. The MACD indicator is also making new highs. Therefore, we can expect the stock to remain bullish in the near-term. As the stock is trading at a greater distance from the 50-day moving average, a healthy price correction may set in soon. Therefore, a stop-loss order should be strictly used while entering a long position.

amzn - technical analysis - 13th July 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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