Amazon AMZN saw its stock price jump over 3.3% to touch another new all-time high Wednesday, this time on the back of Morgan Stanley’s MS massive upgrade. Some investors might not want to touch stocks near new highs, but Amazon seems like it might not slow down. So let’s find out why it remains a must buy.
Morgan Stanley analysts upped their price target for Amazon from $1,850 to a whopping $2,500 per share, which marked a roughly 29% upside compared to Tuesday’s closing price of $1,932.82 per share. The new price target also represented the highest of all 41 analysts who cover AMZN, according to FactSet.
The investment banking giant’s newfound positivity stems from Amazon’s ability to generate higher profits from its high margin businesses for years to come. Morgan Stanley noted that Amazon’s cloud computing business, along with its subscriptions and advertising units alone will bring in roughly $45 billion in profit by 2020, which would mark a roughly 80% jump from this year’s estimated $25 billion.
Morgan Stanley also reiterated its “overweight” rating for Amazon stock and said that its margins would lead to further upward earnings estimate revisions. Shares of AMZN touched a new 52-week and all-time high of $1.997.34 per share and were up over 3.3% through mid-afternoon trading.
Now let’s jump right into those estimate revisions that Morgan Stanly mentioned.
Amazon has earned 18 earnings estimate revisions with 100% agreement to the upside over the last 60 days, for both its current year and fiscal 2019. During this same time period, AMZN has seen 14 upward revisions for Q3 against just one downward change. Investors should note that AMZN’s almost completely positive earnings revision activity helps it earn a Zacks Rank #1 (Strong Buy).
The company also boats an “A” grade for Growth in our Style Scores system. Our current Zacks Consensus Estimate is calling for Amazon’s Q3 revenues to surge by 30% to hit $56.91 billion. Meanwhile, its full-year revenues are expected to reach $234.82 billion, which would represent a roughly 32% climb.
Analysts and investors are also upbeat about Amazon because its plans for expansion are far from over.
Amazon has for years dominated the cloud computing market with its strong service and nearly seven-year head start over some of its biggest competitors. Jeff Bezos’ firm claimed 34% of the total cloud computing market during the second quarter, according to Synergy Research Group, which came in well above Microsoft’s MSFT 14%, IBM’s IBM 8%, Google’s GOOGL 6%, and Alibaba’s BABA 4%.
On top of that, Amazon’s core commerce business, which accounted for 60% of its second-quarter revenues, surged roughly 29% to hit $31.86 billion. Both e-commerce and brick-and-mortar sales, along with AWS and its subscription revenues, which soared 57% to hit $3.41 billion last quarter, make Amazon a force to be reckoned with for years.
AMZN is also sure to become a bigger player in the pharmaceutical world with its PillPack purchase. Looking ahead, Amazon is reportedly ready to jump into the insurance comparison business. AMZN might also have its eyes set on gas stations and the vacation discount industry, which would help it further compete against Costco COST. Plus, there was a recent Bloomberg story that said Amazon is in the running to buy Landmark Theaters. This would help give Amazon another physical retail presence and a guaranteed distribution outlet for its growing array of original movies.
Yet, even if Amazon doesn’t end up entering the movie theater world, its indie-style films that feature some A-list Hollywood stars have become pretty popular on their own. These films have succeeded, in large part, because of Amazon Prime’s growing content library that has helped it compete alongside Netflix NFLX and Hulu. Down the road, its streaming TV service might look even more appealing as it prepares to take on Disney DIS and Apple AAPL because of its push into live sports—which the others have no plans to touch at the moment.
Therefore, despite resting near a new all-time high, Amazon’s growth story appears far from over.
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