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Amazon stock target raised at Goldman on higher profit estimates

Published 2024-07-16, 11:00 a/m
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Goldman Sachs analysts have raised their outlook for Amazon (NASDAQ:AMZN) stock, citing an anticipated increase in operating income driven by stronger margins.

In their recent note, the analysts highlighted three key factors likely to influence Amazon's upcoming Q2 2024 operating results: the overall health of the consumer market, Amazon's ability to enhance its operating income margins, and the growth trajectory of AWS revenue.

Goldman Sachs said Amazon's eCommerce business has remained robust in Q2, despite some weaknesses in the UK and Germany.

The analysts see significant potential for Amazon to outperform in 2025 and beyond, primarily due to higher retail margins and a stronger contribution from advertising.

They also maintain a positive long-term outlook on international margins and expect AWS profitability to remain strong.

"We continue to expect reacceleration through 2024 as prior headwinds around optimization and workload migration turn into tailwinds and AI workloads are a rising tailwind," wrote Goldman Sachs.

The investment bank increased their 12-month price target for Amazon from $225 to $250, reiterating their Buy rating.

This updated price target implies that Amazon will trade at 30 times their revised $8.29 2026 GAAP EPS estimate, which is 12% above the Street estimate of $7.42.

The Goldman Sachs report notes that Amazon's recent stock performance, which has outperformed the S&P and Nasdaq over the past year, has been driven by higher profit estimates despite a period of multiple compression acting as a headwind to equity returns.

In their margin analysis, the bank sees room for retail margins to expand due to operating leverage on fixed retail assets, progress in lowering cost-to-serve per unit, and a more moderate rate of inflation for key input costs.

Additionally, the growing scale of Amazon's advertising efforts is expected to further boost operating income margins. The analysts also view their AWS margin projections as conservative, suggesting potential upside surprises if AWS revenue growth exceeds their forecast.

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