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Amazon Stock Still a Top Pick, Despite Recent Challenges, Says 5-Star Analyst

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No one is immune from higher fuel costs, and this factor is partly why Baird’s 5-star analyst Colin Sebastian has been tweaking his Amazon (AMZN) model.

To account for the rising prices along with “negative trends” in FX rates (a stronger USD) in some of the company’s core international markets, and e-commerce checks which have “suggested some softness through March,” Sebastian has reduced his revenue and GAAP operating income predictions For Q1 and Q2. These now stand at $116.3 billion and $4.7 billion, and $125.7 billion and $6.75 billion, respectively. A portion of revenues should also shift from Q2 to Q3, on the assumption Prime Day takes place in July. Additionally, margin expansion will most likely be capped given the “capacity growth to support AWS.”

That said, all told, Sebastian thinks Amazon is in a “strong competitive position,” and notes that Q1 online spending trends in North America seem to be “tracking in line” with his 5% growth forecast.

Sebastian also anticipates Amazon will keep on expanding both physical grocery stores and online grocery deliveries, with the analyst thinking a mix of micro-fulfillment/retail stores (the Amazon Fresh and Whole Foods brands) “position the company well for gradual market share expansion with a very large TAM.”

And although there are plenty of issues to mull over in the current uncertain environment, Sebastian urges patience, and sees enough catalysts for Amazon to remain a “top 2022 pick.”

“While investors understandably remain focused on macro-related headwinds, we believe sentiment on AMZN can improve over the course of 2022 on the heels of accelerating Online Retail segment growth coupled with ongoing strong growth in services revenues (AWS, 3P and Advertising),” the top-rated analyst opined. “This should also lead to some modest improvement in operating margins as the company leverages the recent fulfillment and logistics build-out, offset in part by a catch-up in AWS/data center growth.”

To this end, Sebastian maintained an Outperform (i.e., Buy) rating backed by a $4,000 price target. The implication for investors? Upside of ~32%. (To watch Sebastian’s track record, click here)

Amazon tends to attract a lot of attention on Wall Street – the stock has 35 recent analyst reviews on record, and they include 34 Buy ratings against just 1 Sell to give the company its Strong Buy consensus rating. The shares have an average price target of $4,143 and change, indicating room for ~37% growth for the next 12 months. (See Amazon stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.