Oppenheimer Boosts Amazon Stock Target After Strong Q3 Performance

On Friday, Oppenheimer, a prominent financial institution, raised its stock price target for Amazon.com (NASDAQ:AMZN) from $220.00 to $230.00. The firm continues to hold an Outperform rating on the tech giant's shares.

This revision comes on the heels of Amazon's third-quarter earnings report, which exceeded market expectations, particularly in its Earnings Before Interest and Taxes (EBIT). The results were especially strong in both e-commerce and Amazon Web Services (AWS), challenging the pessimistic sentiment that suggested e-commerce margins were stabilizing.

CEO Andy Jassy of Amazon shared an optimistic outlook for AWS, citing potential growth in artificial intelligence (AI) investments and the possibility of lower service costs. The company's online stores experienced a year-over-year growth of 7%, a notable improvement from the 5% growth seen in the second quarter and higher than Oppenheimer's projected estimates by 4%.

Although AWS's performance met Wall Street's general expectations, it may have slightly fallen short of what some investors hoped for. Nevertheless, AWS's profit margins significantly exceeded both Oppenheimer's and market estimates, outperforming by 406 and 486 basis points, respectively. Furthermore, Amazon's advertising revenue came in 2% above Oppenheimer's expectations, with management hinting at considerable potential for further growth.

The positive results align with trends from earlier in the fiscal year. Amazon's Chief Financial Officer did not raise any red flags regarding AWS's margins. In light of these figures, Oppenheimer has raised its EBIT forecasts for fiscal 2024 and 2025 by 9% and 10%, respectively, along with a 1% increase in revenue expectations.

The new price target is based on a multiple of 10 times AWS's projected revenue for fiscal 2025 and a multiple of 5 times the expected e-commerce gross profit for the same year. This valuation suggests a 29-times Price-to-Earnings (PE) ratio for fiscal year 2026, excluding Project Kuiper, Amazon's satellite internet initiative.

In addition to its own forecast, Amazon recently reported impressive third-quarter earnings, with revenue climbing 11% year-over-year to $159 billion and operating income hitting $17.4 billion. Meanwhile, AWS reported a 19% year-over-year growth.

Following these remarkable earnings, several financial firms have revised their outlooks on Amazon. The Telsey Advisory Group raised its price target to $235, while Seaport Global Securities increased theirs to $225. Deutsche Bank adjusted its target to $232, and Evercore ISI set theirs at $260. Additional revisions from firms like Baird, Citi, and BofA Securities now reflect targets of $220, $252, and $230 respectively. These adjustments showcase a broad consensus on Amazon's ongoing financial growth and operational efficiency, although the actual results may differ from analyst projections.

Insights from InvestingPro

Oppenheimer's positive outlook, along with Amazon's strong performance, is further underscored by recent data from InvestingPro. The company experienced a revenue growth rate of 12.32% over the last twelve months and an EBITDA growth of 61.87% within the same timeframe, reinforcing trends seen in its e-commerce and AWS sectors.

Additionally, InvestingPro notes that Amazon's current trading P/E ratio appears low when compared to its near-term earnings growth, with a PEG ratio of just 0.2. This suggests that the stock may be undervalued, supporting Oppenheimer's revised price target.

Amazon's position as a leader in the Broadline Retail sector and its capability to comfortably cover interest expenses with its cash flow indicate solid financial health. These strengths contribute to the company's potential for continued growth and profitability.

For investors looking for a deeper analysis, InvestingPro provides 11 additional insights that could offer more detailed perspectives on Amazon's financial future and competitive standing.

Amazon, Stock, Oppenheimer