What goes up must come down, right?
Well, in the case of Amazon (AMZN), this may not be true. The e-commerce giant’s stock has shown torrid growth over the past four months with no signs of slowing down, as Amazon has successfully proved it’s more than just an online store. But while much has been made of its retail prowess — as well as AWS success, growing advertising business and consumer product division — from a qualitative view, many had cast doubt over its valuation.
But Jefferies analyst Brent Thill, using the quantitative-based sum-of-its-parts (SOTP) valuation method, sees Amazon stock rising well beyond its current levels. The analyst reiterates his Buy rating on AMZN, with a $2,300 price target.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Thill has a yearly average return of 18.8% and a 74% success rate. Thill has an average return of 79% when recommending AMZN and is ranked #26 out of 5,181 analysts.
Thill reiterates his bullish rating based on "relatively conservative assumptions, particularly about growth in Amazon's most profitable segments - AWS, Advertising, 3P Seller Services.” While the stock has grown 20% since the beginning of the year, Thill still believes it is undervalued with “many of its embedded growth opportunities...underappreciated.”
While the company’s core retail business is expected to continue to decelerate, Thill believes it still remains “a primary beneficiary of secular growth in eCommerce, growing 1.5-2x faster than the industry, driven by Prime and best-in-class fulfillment capabilities.” Essentially, the analyst is saying that as more customers choose e-commerce, they’ll opt to shop on Amazon more than any other company, mainly because of its value-add services.
Aside from e-commerce, Thill sees AWS — which he calls “the de facto standard for public Cloud” — as “driving overall revenue growth and margin accretion, with additional LT opportunities in SaaS and on-prem / hybrid Cloud.” AWS has served as a major boon to the company, as its high-margins have boosted investor sentiment while allowing the company to ‘toy around’ with new offerings that may not generate a near-term profit.
While retail and AWS are the two largest and most known segments, Thill points to advertising, and 3P Seller Services as segments investors should be aware of, as both are “growing faster than the core retail [business].” Combined with AWS, the analyst estimates “these 3 businesses will be on a combined ~$194B run rate by 2022, accounting for 44% of total revenue but 66% of AMZN's value.”
All in all, Wall Street loves Amazon, and there is very little arguing with that. The company continues to grow at a scorching pace, with multiple revenue operations contributing to bottom-line performance. TipRanks analysis of 37 analyst ratings on the stock shows a Strong Buy consensus, with 36 analysts recommending Buy and one saying Hold. There is a $2,125.16 average price target on the stock, representing a 15% upside. (See AMZN's price targets and analyst ratings on TipRanks)
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