It looks like $1,400 and up is the new normal for Amazon.com, Inc. (NASDAQ:AMZN) price targets these days, although that could be reset even higher very soon. A fresh pair of bullish analyst reports on Amazon stock pushed beyond the $1,400 level to new limits. In fact, there’s a new bull on Wall Street, thanks to the Amazon advertising initiative.
Amazon stock is the “cleanest” economy play
In a note on Tuesday, Oppenheimer analyst Jason Helfstein said on Monday that Amazon stock is his top large-cap pick for 2018 following the strong performance in 2017. Amazon stock skyrocketed 56% during the year, while the S&P 500 gained only 19%. He also maintained his Outperform rating and raised his price target for Amazon stock from $1,330 to $1,450 per share.
He feels that the company is the best positioned among all the large-caps he covers to benefit from several major secular shifts: e-commerce, the public cloud, automation and digital advertising. He pointed out that consumer confidence has reached the highest level in five years, and economists are looking for the nation’s gross domestic product to grow somewhere in the mid-2% range.
Further, he expects tax reform to grant consumers some extra disposable income, which also suggests that 2018 should bring healthy growth in the nation’s economy. He sees Amazon stock as “the cleanest play” based on this trend
Fourth quarter earnings ahead
Helfstein adds that strong holiday sales data from the third-party sellers on Amazon’s platform serve to “de-risk” the company’s fourth-quarter earnings report. He noted that the company missed estimates for North America sales in four of the last five quarters, and he sees the risk of another miss in the fourth quarter as being minimized due to positive comparable sales growth among retailers and third-party e-commerce sales.
He also feels that the margin concerns many had for Amazon have mostly abated. Margin expectations started 2017 at 4%, but they ended up being 2% by the end of the year. However, Helfstein adds that despite this compression, the company’s sales multiple expanded 25% as revenues ended up being 5% better than expected.
Amazon advertising plan drives new $1,600 price target
This year, Helfstein expects on-site advertising to emerge as an additional driver for Amazon stock. He sees this Amazon advertising on the site as offering opportunities for incremental commission rather than simply pure-play digital ads. This doesn’t pit Amazon against Facebook and Google, which he says is a positive. He projects at least $6 billion in digital ad revenue for Amazon in 2019 and an eventual advertising opportunity of $52 billion.
BMO Capital Markets analyst Daniel Salmon said in his own note this week that he has raised his price target for Amazon stock from $1,200 to $1,600, making him now the biggest bull when it comes to the online retailer. He feels that the Amazon advertising business can expand the company’s margin and the multiple of Amazon stock. He added that it may even end up driving Amazon stock even further if management shares extra data metrics on the Amazon advertising business like it did with Amazon Web Services.
Amazon stock surged by about 1% to touch another new high of $1,339.94 in intraday trading on Tuesday.
