Morgan Stanley on Thursday reiterated its "Overweight" rating on Amazon.com's (AMZN) stock, largely predicated on the belief that millions of Whole Foods customers will sign up for Amazon Prime, the e-commerce giant's subscription service.
Morgan Stanley analyst Brian Novak maintained his $1,150 price target for Amazon, representing roughly a 15% upside from Wednesday's close.
"Price cuts, Prime Now and other investment will pressure profitability, but we also see Whole Foods Market driving faster Prime sub growth," Nowak noted.
Novak models that around 38% of Whole Foods shoppers are not currently Amazon Prime subscribers, a percentage equating to about 5 million households.
"We expect Amazon to convert half of these shoppers between now and the end of 2019," he contended. "We see AMZN's Prime member growth and engagement, Echo device sales, and consumer web traffic/interest driving solid top line trends and GMV [gross merchandise volume] per customer growth."
"Growth will come from new shopper growth, which we see inflecting from more competitive pricing and increased convenience," Nowak added. He projected that Whole Foods would capture 3.3% market share of the U.S. grocery market over the next five years.
Shares of Amazon were falling in mid-morning trading on Thursday.
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