Goldman and Morgan Stanley love Amazon (AMZN)
As customers returned to physical stores and supply chain challenges increased, the mega-cap company reported its first earnings miss in six quarters. Amazon shares were down nearly 5% in premarket trading Friday morning. Goldman and Morgan Stanley admitted that at the moment Amazon is among the best stocks to buy now.
“Its broad third-quarter performance and fourth-quarter commentary on operating profit will no doubt disappoint, but we see Amazon positioned… to absorb a host of labor, wage, logistics, and COVID costs,” Goldman Sachs’ Eric Sheridan wrote in a note.
Goldman reiterated its buy rating on the stock, describing it as a “top pick on a 12-month basis.” The firm raised its price target to $4,100 from $4,250, implying a potential 19% gain from Thursday’s close.
While Amazon may spend more in the short term to address logistics and labor issues during the holiday shopping season, optimistic analysts see the fourth quarter as an opportunity for the company to strengthen its retail moat.
“These cost headwinds affect all businesses, including AMZN competitors.” In a note, Morgan Stanley’s Brian Nowak said, “We would expect smaller (particularly sub-scale) retailers/players to feel the pressure even more.” “And with AMZN’s commitment to do ‘whatever it takes to minimize the impact on customers and selling partners this holiday season,’ we may see AMZN take market share.”
Morgan Stanley kept its overweight rating on the stock and cut its price target to $4,000 from $4,100. The new price forecast is 16.1 percent higher than the previous day’s close.
Analysts also note that Amazon’s high-growth segments, such as Amazon Web Services and its advertising business, demonstrated positive trends in the third quarter.
In fact, for the first time in the company’s 27-year history, Amazon’s services revenue surpassed its products revenue.
“This AWS profit pool is one of the advantages AMZN has as it aggressively competes for share during the difficult holiday season,” Nowak explained.
Here are some of the other top analysts’ reactions to the report.
Bank of America — Buy recommendation
“While the outlook was disappointing, Amazon is gaining online share according to BAC card data, 2-year growth is stable/accelerating despite supply chain issues, and AWS was strong in comparison to peers.” We make only minor changes to our revenue estimates and expect margins to rebound in 2023, and we keep our PO at $4,250 based on lower retail estimates but higher AWS estimates and multiples. We continue to believe that the best time to buy stocks is after the market has moved past the uncertainty of an unusual holiday season (labor and supply chain issues, as well as tough pandemic comps), and getting 4Q guidance out is an important step.”
JPMorgan — Overweight rating, price target raised from $4,100 to $4,350.
“We also believe that e-commerce and subscription names will become more appealing toward 2022 as investors shift dollars away from decelerating and Apple-impacted online ad names and toward cleaner e-commerce and subscription names that have lapped their toughest comps and may soon be re-accelerating.” We maintain our Overweight rating and raise our Dec-22 price target to $4,350, based on our SOP, which values the Retail biz at 1.5x our 2023E GMV of $866B and AWS at 18x our 2023E EBITDA of $49B.”
UBS has a Buy rating.
“Shares fell in the aftermarket primarily due to the outlook.” The rev. guide’s high point was below the Street. Furthermore, while investors expected margins to benefit from lower COVID-related expenses year over year, the op. income guide was significantly lower. The 4Q outlook, in our opinion, does not change the LT bull case, but it may be a reason for investors on the sidelines to wait until growth accelerates sustainably.”
Overweight rating at Atlantic Equities.
“The Q4 op profit forecast was more materially lower than expected, though the miss versus consensus was primarily due to $4 billion in costs associated with labor shortages and associated disruption, three-quarters of which should be transient in nature.” We are lowering our estimates to reflect the incremental cost pressures, but with AWS momentum strong, advertising strong, and the shift to 1-day shipping extending competitive advantage, Amazon appears well positioned to deliver accelerating profit growth as 2022 progresses.”
Barclays — Overweight rating, price target reduced from $4,130 to $3,800.
“Amazon appears to be very confident about its capacity and supply chain advantages heading into the holidays, so we could see market share gains, but this preparation comes at a high cost.” We believe this is the last downward estimate revision for a while, and as that second derivative begins to rise, AMZN shares should follow suit. Given the stock’s sideways movement over the last 18 months, AMZN is poised for a strong 2022.”
Piper Sandler — Overweight rating, price target reduced from $3,904 to $3,875
“Overall, results were slightly weaker than expected, with 3Q revenue falling short of PSC by 30 basis points.” The majority of the miss was driven by subscription services and online stores (both 3 percent below PSC), while AWS growth accelerated to 39 percent y/y from 37 percent in 2Q. Management forecasted lower 4Q growth and margins due to difficult y/y comparables and supply chain issues. While wages are rising, investment is continuing.”
Canaccord Genuity — Buy rating
“Amazon reported mixed results in Q3, as normalizing consumer behavior led to a third consecutive quarter of slowing eCommerce growth, while AWS was once again a bright spot as ongoing digital transformation across industries fueled accelerating revenue growth.”
Stifel — Buy recommendation
“We expect AMZN shares to outperform in 2022 as COVID comps and costs fall.” We see the share decline as an attractive buying opportunity as a result of tonight’s report, and we maintain our $4,400 price target.”
Needham has a Buy rating.
In 3Q21, Services “crossed over” and accounted for 50.5 percent of total Sales (ie, $56 billion out of $111 billion), making it larger than Product sales and growing faster. We believe that this shift implies accelerating ROICs and an expanding valuation multiple because service profit margins are 20%, which is 4x higher than product profit margins of 5%.
Guggenheim — Buy recommendation
“We remain confident in Amazon’s long-term prospects and reiterate our BUY rating and $4,200 price target.” We would recommend buying during any share price weakness.”
JMP — Market outperform rating; price target reduced from $4,500 to $4000.
“Looking ahead, we believe Amazon will be able to accelerate growth in 2022 as Prime member retention remains high and the company added 50 million or more new Prime members during COVID-19.” This comes as AWS revenue accelerated for the third quarter in a row, as the pandemic continues to be an accelerant of digital transformation needs as more businesses migrate to the cloud and advertising continues to grow at a rapid pace. To that end, we would take advantage of any significant drop in share prices while maintaining our Market Outperform rating and lowering our price target to $4,000 from $4,500.”
Susquehanna — Affirmative
“Given all of the ongoing macro factors as well as the overall reopening headwind to eCommerce, we believe AMZN’s results and outlook are generally solid.” AMZN is investing heavily to ensure that the holiday selling season is not disrupted, which has impacted the 4Q CSOI guide, though revenue is expected to be in the range. Despite the fact that macroeconomic issues may cloud the near-term outlook, we continue to see AMZN as a long-term secular grower supported by its strong eCommerce, cloud, and advertising businesses.”
KeyBanc has an overweight rating.
“Intensifying cost pressures will dampen near-term results, and we are concerned that they will be more sticky than expected.” We mentioned this in our Earnings Preview dated October 25, 2021, when we lowered broad estimates for much of our retail coverage, but to be honest, the labor headwind is even more intense than we had anticipated. During the high volume 4Q period, supply chain issues are also driving inefficiencies. AWS and advertising continue to be bright spots, highlighting the benefits of a diverse business.”
Credit Suisse has received an outperform rating.
“We maintain our Outperform rating for AMZN shares based on the following factors: 1) continued e-commerce segment operating margin expansion as Amazon expands into larger infrastructure, 2) flexibility for faster-than-expected FCF growth relative to its advertising segment, 3) upward bias to AWS revenue forecasts, and likely more moderate deceleration path as suggested by ongoing capital intensity and rising performance obligations.”
Raymond James — Outperform, price target reduced from $3,900 to $3,840.
“Although Amazon reported another strong quarter of accelerating AWS growth and strong advertising growth, retail sales are slowing as consumers return to pre-COVID levels of online spending mix.” We believe that the topline will continue to be under pressure until 2Q22, when the comparison will begin to ease. Furthermore, the company expects significant labor and material cost pressures as a result of inflation and global supply chain disruption, which will weigh on near-term profitability.”
Goldman list 11 best stocks in China
The stocks are insulated from regulatory risk, have limited exposure to the housing market, and are sensitive to macro policy easing, according to a note issued by the investment bank on October 25.
President Xi Jinping’s remarks on “common prosperity” in August came against the backdrop of a broad regulatory crackdown that has engulfed a wide range of industries, from technology to real estate to private education, roiling and sending the stock market into a tailspin. This year, the MSCI China index is down 12%, while the MSCI World Index is up nearly 18%.
While policy details have been scarce, Goldman believes that Xi’s call represents “a growth reorientation in which policy support could pivot towards industries with long-term strategic value to China.” This includes “semiconductor, green or renewable energy, and sports [sectors],” according to the report.
Despite a drop in Chinese equities this year, there are still opportunities for investors to profit, according to Goldman, who notes that “investing aligned with long-term policy goals has historically been rewarding in China.”
The Wall Street firm identified “mass but distinct consumption,” “hard” technology and manufacturing upgrade, green or renewable energy, and state-owned enterprise reformers as “structural trends that could reshape the alpha-generating universe for Chinese stocks in a new regulatory normal.”
Nasdaq-listed Trip.com is the only name on the Goldman list that is based in the United States. According to a Sept. 29 report by analysts led by Ronald Keung, the investment bank expects the company to deliver gradual margin expansion over the next few years, driven by international business recovery. Goldman Sachs rates the online travel platform provider as a buy, with a 12-month target price of $43. On Oct. 27, the stock closed at around $29 per share.
According to analyst Piyush Mubayi and his team in an Oct. 21 note, the list also includes Chinese smartphone giant Xiaomi, which the bank likes for its consistent execution of its premiumization strategy and expansion of its market share.
Analysts said the company’s remarks at a recent investor day reaffirmed their view of the company’s ability to grow its leading global smartphone market share, while its “Smartphone x AIoT” strategy will drive revenue and profitability growth from internet of things/lifestyle products and internet services. Goldman sets the company’s price target at 29.5 Hong Kong dollars ($3.79), representing a 34% increase over the stock’s Oct. 28 closing price of around 22 Hong Kong dollars. The stock has a buy rating from the investment bank.
Li-Ning, a sportswear retailer, was also chosen by Goldman. Analyst Michelle Cheng and her team noted in an Oct. 25 note that the company delivered a “solid performance” in the third fiscal quarter, with total retail sales data outperforming the Street’s estimates. The bank believes the company will continue to benefit from a strong profit growth trend, which will be driven by healthy brand momentum, efficiency enhancement, and solid industry structural growth upside. The bank rates the company as a buy, with a price target of 115 Hong Kong dollars. On Oct. 28, the stock closed at around 87.4 Hong Kong dollars, representing a potential upside of 32%.
Sports equipment retailer ANTA Sports, pharmaceutical firms CSPC Pharma and Hansoh Pharma, solar glass firm Xinyi Solar, software company Chinasoft International, chip foundry Hua Hong Semiconductor, dairy products manufacturer China Feihe, and online travel agency Tongcheng-Elong are among the bank’s other stock picks in the United States and Hong Kong.