Amazon has received yet another price target increase following its strong second quarter earnings results. More than one firm raised its target for the online retailer to $1,000 per share, and now we have another moving to nearly that much.
Amazon price target to $995
In a report dated August 2, MKM Partners analyst Rob Sanderson raised his target from $850 to $995 per share and maintained his Buy rating on Amazon. He noted that the company’s revenue came in at the high end of management’s guidance, but he was particularly surprised by how high its margins were.
He said he had thought before the print that the bar for international revenue growth and for margins on Amazon Web Services was just too low, and the company beat estimates for both of those metrics. The place where the company especially surprised to the upside was in domestic margins.
Amazon estimates increased
As a result of Amazon’s strong second quarter earnings report, he raised his estimates for revenue growth and margins across the company’s segments. He upped his 2017 revenue estimate 4% and his non-GAAP operating income estimate for the year by 14%. Sanderson also increased his estimate for this year’s non-GAAP operating income by about 9%.
He also expects 500 basis points of deceleration in growth in the company’s North America commerce segment, bringing it to 205 next year, although he notes that the segment has been “very resilient” and stayed higher than 25% since it reaccelerated in December 2014. He also increased his growth estimate for AWS from 49% to 54% because the segment outpaced his forecast for the first half of this year. He’s still expecting next year to bring 42% growth, but that’s on top of higher levels for this year.
Amazon’s near-term valuation improving
He still sees Amazon as “the best, long duration growth story available to large cap investors today.” He admits that the company’s stock is “relatively expensive” based on metrics for the near term, but he notes that margins are starting to rise even though the company continues to invest heavily in future growth.
As a result, he believes the stock’s near-term valuation is starting to become “more reasonable” as it now stands at 18 times his EBITDA estimate for the 2017 calendar year. However, he also sees greater potential for earnings power “in the out-years” as the public cloud shift is still in its early phases and its share of the total retail market is still quite low despite its dominance in both industries.
Amazon shares declined by as much as 0.72% to $755.13 during regular trading hours on Wednesday.
