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Amazon Stock: Why It's Cowen & Co.'s Top Mega-Cap Pick for 2022

Cowen & Co. analyst John Blackledge is bullish on AMZN. His main reason? E-commerce growth will accelerate again in 2022.

So far, the 2021 holiday season has not been the catalyst Amazon  (AMZN) - Get Free Report stock needed to rebuild momentum.

Shares closed at $3,421 last Thursday (December 23), around 4% less than their trading price 30 days earlier. That is unimpressive, and AMZN's total performance year-to-date is less than 5% — even after the "mini rally" of the past few days.

The market may be skeptical about the e-commerce titan. But Wall Street’s top analysts are heavily bullish on its stock.

Figure 1: Amazon's headquarters in Seattle, WA.

Figure 1: Amazon's headquarters in Seattle, WA.

This time it’s Cowen & Co. analyst John Blackledge, who raised his target price for Amazon from $4,300 to an astonishing $4,500 — a 32% upside. Let's dive into his thesis.

(Read more from Amazon Maven: Why AMZN Could Outperform AAPL In 2022)

E-commerce Will Improve in the Second Quarter

According to Mr. Blackledge, the online retail industry should start accelerating by the second quarter of 2022. This should push Amazon’s sales higher — Cowen & Co. estimates gross merchandise value to grow 16% year over year.

In the meantime, the analyst also believes Amazon will improve its e-commerce margins, which should send price shares higher.

The firm’s higher-than-average valuation for Amazon is also supported by its above-consensus projections: Cowen & Co. raised both its back-half 2022 numbers and long-term figures.

Blackledge is betting that Amazon’s 2022 revenue will grow 1% above consensus estimates, as well as pulling in 6% higher operating income and 10% higher earnings per share.

“With Amazon shares trading at 18 times [earnings before interest, taxes, depreciation, and amortization], it is slightly below the midpoint of its historical range," Blackledge wrote.

"[W]e think, with the improving fundamentals, AWS and advertising will be robust again next year, [so] we could get multiple expansion, and that’s why Amazon is our top mega-cap bet."

Increasing Businesses, Decreasing Expenditures

Blackledge also believes the market hasn't taken into account growth in the company's Amazon Web Services (AWS) and advertising divisions.

Since both segments are projected to keep expanding in the future, we could suddenly see Amazon's stock price correct from its 2021 lag.

Blackledge added that Amazon should not increase its operating expenses in 2022. He said the company already “invested so much” throughout 2021. In fact, the analyst is confident the company will start increasing profitability if it hikes up the price of Prime membership.

A $4,500 Scenario?

Since 2018, Amazon has more than doubled its fulfillment network, bolstered its one-day/same-day delivery capabilities, and improved its Prime Video catalog. On the other hand, investors saw Amazon's margins take a hit in 2021, mostly due to higher labor costs and increased wages.

As the company digests these extra operating expenses and moves away from 2020 comps, Blackledge is confident that Amazon's stock will finally regain its traction.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)