Amazon: The $2,600 ‘Bull Case’ for the Shares
(Source: barrons.com)

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(Original link: barrons.com)

Photo: Agence France-Presse/Getty Images By David Marino-Nachison July 11, 2018 10:50 a.m. ET Amazon.com ’s (AMZN) advertising, cloud computing and Prime revenues can fund investments that help the company’s shares toward $2,600, according to new research.
In a Wednesday note, Morgan Stanley analysts—who have an “overweight” rating and a $1,700 price target, below current levels and FactSet’s mean around $1,900—said they can see a way for the Barron’s Next 50 stock to reach their $2,600 per share “bull case.”
Newsletter Sign-up Those three business lines “are enabling Amazon to continue to invest as hard as ever while also delivering higher profitability and revisions,” the analysts wrote.
“By our math Amazon’s advertising, Amazon Web Services and Subscription [earnings before interest and taxes] this year ($24.5bn) will be ~17x greater than Amazon’s total EBIT in 2010,” Morgan Stanley wrote. “Over the long-term the scaling of the business (AWS revenue growing at a 39% ‘17-’20 CAGR, advertising revenue growing at a 61% compounded annual growth rate) will only further Amazon’s ability to invest and deliver higher profitability.”
Illustration: Morgan Stanley The analysts’ bull case is based on a sum-of-the-parts valuation, which values the company’s businesses separately and then combines them. The $2,600 per share estimate represents a $1.3 trillion market cap. (Analysts often offer bull, base and bear cases for their predictions incorporating different assumptions.)
Illustration: Morgan Stanley Evercore ISI analysts on Wednesday boosted their Q3 estimates for Amazon’s operating income, citing the effects of Prime price increases and growth in the company's high-margin businesses; they also lowered their 2019 estimate based on expected continued investment in Alexa, logistics , and other efforts.
Evercore has an “outperform” rating and a $1,900 price target on Amazon’s stock. The company’s shares are up nearly 50% in 2018.
Email David Marino-Nachison at [email protected] . Follow him at @marinonachison and follow Barron’s next at @barronsnext .
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