Shoppers’ eyes will be on Amazon this week because of Black Friday, and most analysts agree that the online retailer is the one to beat. One sore area has been gross margins as the company is notorious for operating on razor-thin margins. However, one analyst has actually increased his target price for Amazon stock after analyzing the retailer’s gross margin prospects. Another boosted his Amazon stock price target for what he believes will be a better-than-expected holiday shopping period.
Amazon’s the one to beat
In a note on Monday, Nomura Instinet analyst Simeon Siegel said that he raised his price target for Amazon stock from $1,100 to $1,360 per share and reiterated his Buy rating. He noted that almost all retailers are on the defensive this holiday shopping season. He added that the very few which are willing or able to go on the offensive “have been digging ever increasing moats to take ever increasing share.”
In order to keep growing its selling, general and administrative expenses, Amazon will need to increase its gross margins, he believes. After analyzing the company’s margins, he said that product mix alone could drive more than 1,000 basis points of gross margin lift in the long term, this driving an investment of $160 billion into deepening the online retailer’s “moat.”
Looking out to 2022, Siegel sees the shift to third-party selling as providing a lift of about 600 basis points to Amazon’s gross margin. He expects Amazon Web Services to contribute about 420 basis points of improvement and new Prime and subscription services as adding another 295 basis points to the gross margin.
Amazon stock price target boosted for shopping season
GBH Insights analyst Daniel Ives also raised his price target Amazon stock this week. His new target is $1,270 per share, up from $1,185, and he continues to rate Amazon stock as Highly Attractive.
He cited his retail checks going into the holiday shopping season, which he said have been “incrementally stronger” based on his firm’s survey work. He believes Amazon could easily beat fourth-quarter earnings estimates because of an exceptionally strong holiday shopping season.
He estimates that the average Prime customer is expected to spend 20% to 25% more this year than they did last year. On top of that, the size of Amazon’s Prime customer basis is much larger than it was a year ago. He believes that these two things together will set Amazon up for a blow-out holiday season.
He also notes that Amazon stock has run up a lot this year, riding on the momentum that has carried it along throughout the year, but he still sees “more fuel left in the tank.” He believes that the online retailer is only “in the middle innings of an unprecedented growth cycle across both the consumer and enterprise segments.”
Amazon stock ticked lower by as much as 0.56% to $1,123.70 in afternoon trading on Monday.