Proactive Investors - Amazon.com Inc (NASDAQ:AMZN) has earned a price target hike from Bank of America (NYSE:BAC) analysts who believe the eCommerce giant still has runway ahead for efficiency gains in logistics.
The analysts upped their price target to $220 from $210 and awarded Amazon a ‘Buy’ rating.
Shares of Amazon traded up 4.3% at about $194 on Wednesday afternoon, buoyed by media reports it plans to launch a discount section with direct shipping from China to rival Temu and Shein.
The jump in Amazon’s shares saw the company’s valuation top $2 trillion for the first time.
“Retail has been the big driver of recent estimate revisions (over Amazon Web Services), and with Q1 2024 efficiencies exceeding expectations, we think Amazon is on a good path to drive more retail margin leverage upside in 2024,” the analysts wrote in a note to clients.
“Longer term, we outline a potential case for 12% retail margins assuming comparison margins for retail/advertising.”
They believe Amazon has built a “logistics powerhouse,” forecasting more than 9 million packages will be delivered globally this year.
“Amazon could now be the largest US shipper, ahead of UPS,” they wrote. “Delivery speed is also dramatically improved, with nearly 25% of estimated units now delivered same-or-next day.”
They noted that five logistics utilization metrics, such as units per square foot, remain below 2018 levels, suggesting the potential for future efficiency gains.
“CEO Andy Jassy has expressed that efficiency can exceed 2018 levels, stating on the 4Q 2023 call that 2018 should not be the ‘north star in Cost to Serve,’” the analysts wrote.
They see six potential levers of ongoing retail efficiency, namely inbound cross docks and new consolidation centers; efforts to improve inventory network distribution, with new fees incentivizing third-party sellers to spread out inventory; a higher share of units from new same-day sites, which carry a lower cost to serve versus traditional fulfilment centers; robotics integration expanding fulfilment centers; square footage growth decelerating below unit growth; and traction for third party shipping services and Supply Chain by Amazon.
But they highlighted that the Street’s retail margins estimates still look conservative, projecting only 120 basis points year-over-year improvement for Q2 to Q4 despite nearly 500 basis of year-over-year margin leverage in Q1.
“We think Amazon can drive upside, given another year of limited fulfilment expansion in 2024, similar to 2023,” the bank’s analysts wrote.
“Maintaining Q1 margins through the end of the year would drive 3% upside to Street profit estimates, but an upside case with 50 basis points margin improvement from here could drive 8% upside.”