Credit Suisse has reiterated Amazon.com Inc. (NASDAQ: AMZN) as Buy and raised the price target to $2,400 from $2,100. The move is on the heels of serious selling pressure on Amazon and other high-beta internet names.
After digging through the issues for fulfillment and shipping, analyst Stephen Ju once again made extensive changes to Credit Suisse’s model. The firm has recalibrated Amazon’s growth drivers as well as modeled in incremental shipping and fulfillment expenses. The firm also has assumed the maximum impact of minimum wage hikes and the proposed fee increases coming from the U.S. Postal Service.
Credit Suisse’s fiscal 2019 earnings per share estimate is now $34.99, versus a prior $43.11. Despite the cut, the thesis remains intact and the firm was comfortable raising its target to $2,400 from $2,100.
Credit Suisse’s investment case is one in which Amazon should continue to reap fulfillment and shipping cost benefits of this current harvest cycle given. That will come from robotics and better unit economics in its Flex delivery network through rising order density. Ju’s note did contain some offsets here:
That said, offsetting some of this will be the recent announcement of a minimum wage increase and proposed USPS fee increase. We believe the former will result in an incremental ~$300 million and ~$1.1 billion increase for the fourth quarter of 2018 and 2019 respectively while the latter should be another $400 million to $1.1 billion for 2019.
The report further noted:
We have conservatively elected to layer in the maximum cost impact from these two factors into our estimates. Otherwise, our investment thesis for AMZN shares remains unchanged and we maintain our Outperform rating based on the following longer-term factors: 1) continued e-commerce segment operating margin expansion as Amazon grows into its larger infrastructure, 2) optionality for faster-than-expected free cash flow growth vis-à-vis its advertising segment, and 3) upward bias to AWS revenue forecasts and likely more moderate deceleration path as suggested by ongoing capital intensity in the business.
Credit Suisse also noted some risks to its optimism. Higher-than-expected capital intensity for either the e-commerce platform or for web services (AWS) could interfere with the upside.
Shares of Amazon.com were last seen trading up more than $38, more than 2%, at $1,802.77 on Monday morning. Its consensus analyst target price from Thomson Reuters was roughly $2,164 on last look, and its 52-week range is $962.50 to $2,050.50. After having briefly joined the trillion dollar club, Amazon’s current market cap is roughly $864 billion after the recent sell-off.
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