At Last, Amazon Upgraded to Outperform at Bernstein
Jeeho Yun, Nikhil Gunderia & Alex Moreno
After a stubborn 18 months of being "stuck in neutral," Amazon was able to show just how dominant it is this year, as millions were sheltered in place and employers were forced to put in place remote operations - a dynamic that lead to consumers shifting purchase habits online and employers leveraging the power of cloud computing to maintain operations. As a result, analysts at AllianceBernstein upgraded shares to Outperform on Tuesday while reiterating their $3,400 price target.
Prior to the upgrade, the New York-based firm was Neutral on shares due to “slowing eCommerce migration, a string of lackluster results breaking into new categories (grocery) and businesses (pharma, B2B IT distribution), and questions around capital allocation – specifically investing in 1-day delivery over our preference for on-demand.”
However, Bernstein is more now more optimistic on the e-commerce powerhouse, especially after the recently selloff in shares, which in their view which creates an “attractive entry point” for prospective investors.
Amazon’s continued performance at unprecedented levels, coupled with a realization that the company is “the sole eCommerce demand aggregator,” gives many a reason to maintain every bit of optimism about the Seattle-based company.
Amazon’s online platform is a large proprietor of its recent success throughout the pandemic, and will likely realize even further growth as we start living a new normal which some have referred to as "America 2.0". Amazon also opened 100+ new facilities - increasing fulfillment capacity by ~50% this year, and plans to hire an additional 100,000 workers. However, much like every other company in the world, they’re not perfect.
Bernstein sees three potential risks associated with the company. The first threat to Amazon is the regression of the eCommerce industry after two quarters of continuous expansion. With digital penetration and growth rates starting to slow, Bernstein fears that companies in the eCommerce industry, including Amazon, will lose some of their gains.
Another risk that Amazon and expensive tech companies may experience is the inflation of the stock prices relative to the rest of the market. Although the valuation metrics have not reached levels equivalent to that of 2000, there is the initial fear of a repeat of the internet bubble burst.
Finally, Bernstein identified the impact that regulatory activity could have on Amazon. Although Alphabet and Facebook are dealing with the brunt of the government’s crackdown, Amazon’s role as a “marketplace and 1P seller in retail” could cause some problems. Big tech has caught the attention of the US government and could be in for some real trouble in the long-term.
Regardless of the risks associated with Amazon, Bernstein believes that this is the perfect opportunity to purchase the stock.
Disclosure: At the time of publication, we are long Amazon. We wrote this article ourselves, and it expresses our own opinions. We are not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.