Skip to main content

JPMorgan on Amazon Stock: 43% Upside Potential

Analyst Doug Anmuth has kept his price target for Amazon at $4,350. Here's why he's so bullish.

The stock market has been plummeting in January, due mostly to concerns about upcoming Federal Reserve rate hikes.

The S&P 500 has lost 7.2% of its value year to date. And the tech-heavy Nasdaq Composite has done even worse, falling 11.6%.

At the same time, Amazon  (AMZN) - Get Amazon.com, Inc. Report stock has lost 12%.

However, JPMorgan's Doug Anmuth is still bullish on AMZN. In fact, the Seattle-based company is his firm's top pick for 2022.

Anmuth rates the stock as a strong buy with a $4,350 price target. That would imply an upside of 43%. Is it time to buy the dip?

Figure 1: JPMorgan on Amazon Stock: 43% Upside Potential.

Figure 1: JPMorgan on Amazon Stock: 43% Upside Potential.

(Read more from Amazon Maven: Where To Invest In The “Cloud Wars”: AWS vs. Azure vs. Google Cloud)

Off to a Slow Start

Investors shouldn't expect a short-term rally for Amazon. Although the company likely performed very well during the challenging holiday season, macroeconomic headwinds — inflation, potential interest rate raises, and increased labor and operational costs — remain a risk for the e-commerce giant.

In fact, Anmuth has lowered his revenue projection for the first quarter of 2022 to $120.5 billion, which would represent 11% growth year-over-year. In comparison, Amazon saw 44% year-over-year growth in the first quarter of 2021.

Anmuth also trimmed his 2022 earnings per share (EPS) estimates from $79.47 to $75.17. He explained:

“Though our estimates come down, we believe lower expectations should help de-risk shares and AMZN will become a cleaner story to own through 2022,” he wrote in a research note.

But Amazon Will Accelerate Again

JPMorgan's Doug Anmuth believes revenue should start to accelerate by the second quarter, driven by five main factors:

  1. A combined sales boost in its grocery, accessories, and furniture divisions, plus a selective price increase in these categories.
  2. An ease in operating costs, due to the infrastructure investments made in 2021. This would leave space for some extra marketing expenditure.
  3. The increase in FBA (Fulfilled by Amazon) fees, which would ultimately lead to an extra $1 billion to Amazon’s bottom line (discussed by Morgan Stanley’s Brian Nowak)
  4. A possible price hike for Prime membership, which would result in another $3 billion in Amazon’s coffers.

Our Take

Despite Wall Street’s bullish views on Amazon shares, concerns over macroeconomic issues have been a main factor in the stock market right now. They've dragged down both the S&P 500 and the Nasdaq Composite.

In such an uncertain scenario, buying the dip could be a reasonable approach for AMZN's long-term bulls. But short-term speculators may still watch their shares bleed. This looks like a classic case of high risk, potentially high reward.

Is the price right?

Looking at a company’s business fundamentals is only half the work needed to find a good stock. How much one pays to own the shares is a key factor in the success of any investment. This is why valuation analysis is so important.

Alpha Spread’s user-friendly platform allows you to estimate a stock’s fair value –through valuation multiples, discounted cash flow, and more. I believe that the service is a must for anyone looking to own the right stock at the right price. Check out alphaspread.com and get started with a 7-day free trial.

(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)