Investment bank Cowen tabbed Amazon (AMZN) - Get Report as one of its top stock ideas for 2020, saying it expected the e-commerce and cloud giant to experience strong revenue growth and margin expansion in the coming year.
Cowen predicted that Amazon's revenue growth would be led by e-commerce, advertising, AWS and its subscription business, while margin expansion will occur as investments in one-day delivery and AWS sales and marketing staffing start to moderate.
Amazon shares were rising 0.9% to $1,784.77 on Tuesday morning and are up about 19% year to date.
Cowen put a $2,400 price target on the stock, representing upside of about 36%, with potential drivers being rising estimates and the potential for the multiple expansion. It noted that Amazon’s current enterprise value of 14.5x EBITDA on its 2020 estimate is on the low end of the stock’s 13x-25x peak-to-trough multiples over the past five years.
Cowen added that the potential for further household penetration of Amazon Prime may be being under appreciated. At the end of Nov., Cowen estimated that 69 million U.S. households subscribed to Prime, which was 13% higher than the previous year and the third straight quarter of accelerating growth. Cowen tied some of this acceleration to the launch of one-day delivery, which enhanced the attractiveness and value proposition of Amazon Prime.
Cowen analysts said the risks to its call include AWS revenues declining faster than expected, regulatory risk and higher investment spending than currently forecast, which would limit margin expansion potential.