Amazon stock continues to hover near its all-time high following a price target increase and the news that the U.S.-based online retailer has agreed to buy Middle Eastern e-commerce giant Souq. The financial terms of the deal were not disclosed, although the company is rumored to have paid $650 million for it despite a higher bid by Emaar Malls, owner of the biggest mall in Dubai.
Souq receives over 45 million visits every month and has local operations in the UAE, Saudi Arabia and Egypt. Amazon has been rumored to be interested in acquiring the company for several months. It represents the U.S. e-commerce giant’s first push into the Middle East. According to Stifel analysts, if Amazon paid between $650 million and $750 million as has been rumored, Souq would be one of its biggest acquisitions. The deal is expected to close sometime this year.
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Stifel boosts Amazon stock price target
In a research note dated March 27, Stifel analyst Scott Devitt said he upped his price target for Amazon stock from $912 to $1,025 and reiterated his Buy rating. The price increase brings him into the $1,000 price target club for Amazon stock, although a few analysts left the club last month after the online retailer missed revenue estimates for the fourth quarter.
Devitt pointed out that last year, e-commerce sales in the U.S. saw their fastest level of growth since 2011, driven by an acceleration in the shift from offline to online shopping. He feels that the acceleration in this offline-to-online shift is likely to continue because of the wave of retail store closings planned for this year and beyond.
He sees Amazon as the main beneficiary of this shift because of the growth in Prime subscribers, its strong logistics infrastructure, and the improvements it has made in categories that were late in the online migration, such as clothing and consumables. The main driver of Devitt’s price target increase for Amazon stock was the retail segment, as he mainly increased his revenue estimates for North America and International Retail, although he also “modestly” upped his Amazon Web Services estimates.
Should Amazon stock really be so high still?
MKM Partners analyst Rob Sanderson isn’t quite yet in the $1,000 club on Amazon stock, or at least not yet anyway, as his price target stands at $995. He reiterated his Buy rating in a note on March 28 and said that lately, investors have been asking him why Amazon stock has remained close to its all-time highs even though the retailer missed consensus sales estimates for all three segments in the fourth quarter.
Like Devitt, he noted that offline retailers are having a difficult time right now. However, he added that retail investors are being increasingly pointed toward Amazon stock by analysts. Sanderson describes Amazon stock as “the best long-term growth story available to investors today,” although he also feels that trading tactics on the name are “somewhat more challenging” now than they were in past recent quarters.
A tricky first quarter for Amazon stock
He explains that price cuts for Amazon Web Services, momentum by the company’s competitors, and the fact that Amazon stock is still near its record highs all make this investing story a bit more difficult now.
Sanderson noted that Amazon’s weak fourth quarter came at a time when most of the retailers he looked at with mostly U.S.-based operations and more than $5 billion in annual revenues also had weak quarters and missed expectations. However, he feels that the set-up for the first quarter has a bigger range of possible outcomes than past quarters have. He’s expecting the online retailer to post $1.23 per share in earnings and $35.6 billion in sales for the first quarter.
Shares of Amazon stock closed up 1.08% at $856, near the 52-week high of $862.79.