In another bullish point for Amazon.com, Inc. (AMZN), Pacific Crest Securities hiked its target price on AMZN stock Thursday citing changes to the e-commerce giant’s fulfillment network.
Separately, AMZN said it’s lowering fees on merchants to sell USB cables, smartphone screen protectors and other items small enough to fit in envelopes. The move is seen as a challenge to Alibaba Group Holding Ltd (BABA), eBay Inc (EBAY) and other middlemen connecting U.S. consumers with Chinese sellers.
But that’s not what drives Pacific Crest’s increased optimism. It lifted its price target to $820 from $800. The higher target gives AMZN stock implied upside of 15% in the next 12 months ago. Analysts’ average price target of $800 gives the stock implied upside of 12% in around a year.
Additionally, Pacific Crest maintained its overweight rating (buy, essentially.) and lifted earnings estimates. The full-year forecast went to $5.55 a share from $5.50 a share for 2016, while fiscal 2017 rose to $10.17 a share from $9.74 a share.
Analysts on average peg AMZN earnings per share at $5.39 and $9.92 for 2016 and 2017, respectively, according to a survey by Thomson Reuters.
Underpinning the Pac Crest move is Amazon’s decision to lease dozens of planes as part of an in-house freight service. From the note to clients:
“Amazon’s move to add air capability between fulfillment and sort centers and additional use of alternative last-mile providers can help alleviate pressure on shipping costs.”
AMZN Stock Is Beloved for Good Reason
It’s hard to find a big-name stock that Wall Street adores more than AMZN. Of the 45 analysts covering AMZN stock, 40 have it at buy, four rate it a hold and none call it a sell. Even Facebook Inc (FB), which is another stock analysts fawn over, has a sell call on it. (Of the remainder, 47 say buy and three say hold.)
Sure, this could prove to be a contrarian indicator. It’s often a warning sign when analysts crowd together on one side of anything. But in this case, it is indeed very hard to make a bear case on Amazon stock.
AMZN recently notched a series of all-time highs, so it wouldn’t be unusual to see shares pause or even consolidate gains in the short term. After all, AMZN is down almost 3% since the record close of $728.24 on the second day of June. It’s even possible to argue that AMZN will continue to decline until it finds support at its 50-day moving average, which is 5% below the current price.
Investors will be lucky if it does. Anything that brings the price down on a slam-dunk buy like AMZN is a chance to pick up more. The growth rate is simply too massive to forego. This is a company with a market cap of $335 billion with a long-term growth forecast of 45% per annum.
And that may be too conservative given Amazon’s imperial ambitions and track record of (mostly) successes. That’s why the forward price-to-earnings multiple of more than 70 is no problem for the bulls.
When it comes to AMZN stock, it’s wise to go along with the herd.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
