Amazon.com Inc.’s stock can shoot some 30% higher, according to a Stifel analyst who just joined the bull camp.
Stifel’s Mark Kelley initiated coverage of Amazon shares
AMZN,
with a buy rating and $173 price target Monday, cheering the company’s immense scale in retail and the way it leveraged that size to build related businesses, like advertising.
Amazon’s stock comes with various debates, but Kelley is upbeat about the company’s ability to positively surprise Wall Street. For one, he’s optimistic Amazon will deliver upside to operating-margin expectations, driven by advancements in its fulfillment efforts.
Read: Amazon faces a near-term cloud — but this analyst sees far sunnier days ahead
The company recently moved to a regionalized fulfillment network from a national one, which “not only streamlines the network, but also makes same or next-day delivery more predictable, with more [stock-keeping units] currently offered with expedited shipping (same and next-day),” Kelley wrote.
Amazon’s management has called out other improvements as well, suggesting to Kelley that the e-commerce giant ultimately can get its margin profile above where it was prior to the pandemic.
See also: Retail sales rise on strong car sales and Internet buying, U.S. economy not slowing much.
Kelley also discussed the potential for upside in Amazon’s advertising business. “Amazon was a pioneer in what is now known as retail media (retailers becoming publishers and selling advertising on their apps and sites),” he noted, but now the company is expanding its advertising business, with plans to include some ads on Prime Video.
“We also note that Amazon offers broader ad tech tools (demand side platform, etc.) and is now a Pinterest advertising partner,” he continued.
Amazon shares have gained 58% so far this year, but Kelley sees an “attractive” valuation, with the stock trading at about 11 times consensus expectations for two-year forward adjusted earnings before interest, taxes, depreciation and amortization. He sees the current valuation profile as appealing given Amazon’s “growth trajectory and margin profile (which we expect to expand through 2025).”
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Kelley also began coverage of eBay Inc.
EBAY,
Etsy Inc.
ETSY,
and Wayfair Inc.
W,
establishing hold ratings on those three names.
EBay “continues to make strides in its technology-enabled strategy and focus on higher-quality buyers, but we think it may take more time to see the benefits of the turnaround that has been underway for a few years,” according to Kelley.
While he appreciates Etsy’s “unique” platform, he worries that “recent habitual buyer trends have waned somewhat,” and he’s “a bit concerned” about what discretionary spending patterns will look like moving into 2024.
As for Wayfair, he applauded the company’s work to grow the online home-furnishings market, but he notes that there’s been some pressure on average order values as customers put more money toward services.
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