By
Chimamanda U. Martha
March 11th, 2024
Pivotal Research analyst Michael Levine has a price target on Amazon stock of $2,750 a share, the highest on Wall Street according to Tip Ranks. That’s well above second-highest forecast, that had $2,500 target.
Get ready Amazon investors because this little stock could surge more than 50% if it’s to believe what Michael Levine, a senior analyst with New York equity-research firm Pivotal Research Group, has to say.
It was pretty much up at May the 3rd but Amazon’s stock has actually been quietly falling about 8%. However, this stock’s decline hasn’t gained much attention due to rising trade tension headlines. That could be changed. Some bullish options bets suggest the stock may be about to rise to $1,970, and so does the technical chart, which suggests a climb to as high as $2,025.
Levine initiated coverage of Amazon with a Buy rating and a $2,750 price target. That’s 50% higher than Tuesday’s close of $1,836. Levine’s target is also 23% above the average analyst price target of $2,229 according to FactSet.
Michael Levine’s outlook reminds us of the optimism expressed by billionaire investor Warren Buffett. Earlier, this month, Buffett revealed that he now owns Amazon stock and was “an idiot” for not investing in the e-commerce giant sooner.
Buffett said he regretted underestimating Jeff Bezos and his relentless will to win.
“I’ve been an idiot for not buying [Amazon stock sooner].”
Amazon stock was down 1.1% Wednesday afternoon to $1,819 a bit behind a 0.9% loss and a 0.7% loss in the Dow Jones Industrial Average and the S&P 500, respectively.
Wall Street is uniformly bullish on Amazon. All 46 analysts tracked by FactSet have a Buy (or equivalent rating) on the stock.
However, the company reported earnings per share of $7.09 in the first quarter, blew away analysts’ consensus earnings estimate of $4.72. Operating income also popped to $4.4 billion, outpacing the high end of management’s guidance of $3.3 billion for the quarter.
Surprisingly, investors didn’t exactly respond enthusiastically to the company’s first-quarter results. Amazon’s stock price didn’t budge much after the quarterly report was released, which likely indicated that some investors were concerned that Amazon’s sales only grew by 17% year over year, which was the second sequential quarter of slowing revenue growth.
Levine said that Amazon has the highest quality management and franchise within global internet and is therefore “a must-own name with huge upside even from here.
“That’s because the company’s Amazon Web Services (AWS) cloud business will surprise investors with its growth. Amazon’s move towards one day shipping is a significant step to owning the consumer’s wallet. Despite deceleration, it remains the most open-ended story in large cap tech.”
He also noted that there was an inherent tension between using more website real estate for advertising versus using it to drive more important long-term initiatives such as Echo devices, Prime usage, etc. that enhance the customer experience and value proposition for Amazon users.
“Amazon has been in the advertising business for well over a decade, and there are likely very good reasons why they have not ramped up faster.”
Amazon’s “Substantial Growth Ahead”
Levine claims that there is a substantial growth ahead.
“Amazon will grow ads from an estimated $3.5 billion in revenues in 2016 to $12.5 billion in 2019. We view the business as highly complementary to Amazon’s retail business, but not the golden goose big bulls think.”
Levine’s price target would value the company at $1.35 trillion.
The truth is that Amazon has expanded quite a bit from a relatively simple online bookseller. Its cloud computing business, Amazon Web Services, may be worth more than its core retail business. And investors are for sure very excited about the prospects of its burgeoning ad business.
But the market may be undervaluing its core retail business, according to Michael Olson, an analyst at Piper Jaffray. He says the market is valuing Amazon’s retail operations more like Walmart’s or Costco’s and less like Alibaba’s or eBay’s . Valuing it in line with its online competitors could result in a half-a-trillion-dollar difference. Olson saw Amazon’s stock price going to $3,000 per share within two years as the market realizes the value of Amazon’s retail business.