Amazon.com, Inc. (NASDAQ:AMZN) picked up some more analyst love ahead of its Thursday earnings release as Amazon stock received yet another hike to its price target.
Ideally, expectations are low headed into a company’s quarterly report because it’s easier to clear a low bar. In the case of AMZN, however, that’s probably not going to matter. After all, business is like a boulder picking up speed as it rolls down a hill.
Indeed, between e-commerce — and the expansion of higher-margin Prime subscriptions — and Amazon Web Services (AWS) cloud computing, the top- and bottom-lines have been unstoppable.
Amazon has reported negative earnings per share in two of the last five fiscal years, but Wedbush Securities analyst Michael Pachter thinks the days of “uneven profits” are over. Indeed, Pachter believes AMZN’s better-than-expected first-quarter results means that the e-commerce giant is “poised to deliver substantial earnings growth” on a more regular basis.
As such, the analyst reiterated his rating of “Outperform” (buy, essentially) on AMZN stock and raised his target price to $835 from $775. That gives the Amazon stock price implied upside of more than 12% in the next year or so.
Amazon Stock Rides on the Cloud and Prime
The key to this new era of prosperity is the expansion of gross and operating margins at Amazon Web Services, which has become a jet engine of growth. At the same time, e-commerce continues to build its lead over all comers with the expansion of Amazon Prime.
Prime members spend far more on AMZN than non-Prime members, which is why the company is so focused on building out the business. As its popularity grows, so does the outlook for the Amazon stock price. As the analyst said in a note to clients:
“Prime membership growth has continued unabated and we expect the monthly Prime subscription offering to substantially inflate the number of Prime customers seasonally, particularly around the holidays.”
A number of fellow Wall Street analysts concur with Pachter’s view. Late last week, Goldman Sachs analyst Heath Terry reaffirmed his buy rating and lifted the price target to $900 from $750. That’s good for implied upside of 20% in the next year.
Although the Street’s average target prices implies upside of just 7% — which would usually be called a hold — the bulk of opinion falls solidly in buy territory.
Of the 46 analysts covering AMZN stock, one calls it a sell, five have it at hold and a whopping 40 mark it as a buy or strong buy. As I’ve written before, Amazon stock is a no-brainer at current levels. We’re talking about a company with a market capitalization of $350 billion that has a long-term growth forecast of 55% a year.
That may be an unprecedented combination of size and potential profits. Whatever happened to the law of large numbers? Between Amazon Prime and AWS, Amazon stock should have no shortage of catalysts going forward.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
