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Hold AMZN? Why This Analyst Lowered His Price Target

Rosenblatt Securities is the only firm that rates the e-commerce behemoth as a hold. Here's why the firm is bearish on the stock.

2022 has not been kind to Amazon  (AMZN) - Get Inc. Report shareholders. However, Wall Street analysts are almost unanimous in the idea that the e-commerce giant will emerge stronger from the current economic crisis.

Yes, I wrote "almost."

Rosenblatt Securities’ Barton Crockett is the exception to the rule. The analyst recommended investors “hold” their shares in April, at a price of $3,000 — equivalent to $150 after the split. And although the analyst has maintained his neutral rating, he recently lowered his valuation to $107.

Here's why Crockett changed his mind.

Figure 1: Hold AMZN? Why This Analyst Lowered His Price Target

Figure 1: Hold AMZN? Why This Analyst Lowered His Price Target

(Read more from Amazon Maven: Amazon E-commerce: More Losses Ahead)

E-commerce: Still the Reason to Sell

Crockett’s pessimistic forecast might be turning to reality: Amazon is not resistant to the inflationary environment. His investment thesis has implied the e-commerce juggernaut does not possess pricing power over consumers due to the retail industry’s natural competitiveness.

"We continue to see consensus long-term sales estimates as too high, mainly from what we see as excessive long-term optimism for online retail," said Crockett. "Amazon's multi-year extraordinary outperformance in retail has substantially diminished. We expect that to persist."

The bad news turned worse when the U.S. Census Bureau reported that, by the fourth quarter of 2021, e-commerce sales had returned to their pre-pandemic market share of 12.9%, from 15.7% in the second quarter of 2020 — right after the start of the first lockdowns.

Since competitors — such as Walmart  (WMT) - Get Walmart Inc. Report and Target  (TGT) - Get Target Corporation Report — hold better positions in the brick-and-mortar retail space, sales that would have gone online could have ended up happening offline, due to the consumer behavior shift to pre-pandemic patterns.

AWS: Still the Reason to Buy

Crockett remains bullish on AWS, Amazon's cloud computing business, though. The cloud arm was responsible for bringing $6.5 billion in operating profits in the first quarter of 2022, bringing the company’s consolidated operating profit to a total of $3.7 billion.

"Other elements of Amazon remain secularly hearty, including AWS. Progression towars retail maturity and heightened macro risks move us to lower long-term multiple assumptions, reducing our price target," the analyst added.

Still Sell + Still Buy = Still Hold

Rosenblatt’s overall thesis hasn’t changed much from April to June, except for the extension of its projections for the e-commerce titan: "Our 2Q22E Amazon total sales projection is consistent with guidance and FactSet consensus. But our 3Q22E, 4Q22E, 2023E and 2024E are 3% to 6% lower."

In the end, Crockett believes Amazon’s e-commerce growth will hardly outperform the broader U.S. retail industry, as the move of Prime Day from the second to the third quarter in 2021 will distort comparisons.

Still, the macro scenario is still the major concern. Crockett believes inflationary pressures on Amazon’s profitability will persist for longer than the overall market projections.

(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 Amazon Maven)