Morgan Stanley analyst Brian Nowak has reiterated his Overweight rating on Amazon.com Inc (AMZN) with a price target of $210. Nowak’s assessment is based on his belief that Amazon’s strong growth prospects and potential for capital returns make it an attractive investment. He believes that Amazon’s current valuation, which represents a 29% growth in fiscal 2024-2026 free cash flow per share CAGR, is a significant discount compared to its mega-cap tech peers. This discount is even more pronounced when looking at fiscal 2025-2027, where the price target implies a 24% growth in free cash flow per share CAGR.
Nowak acknowledges that Amazon is facing some near-term profit challenges, particularly in the fourth quarter. These challenges are primarily attributed to Amazon’s growing focus on lower-priced, lower-margin essentials, which has put pressure on its merchandise margins. The competitive holiday season and anticipated discounting are expected to further add to these near-term uncertainties.
Despite these challenges, Nowak remains optimistic about Amazon’s long-term prospects. He believes that Amazon’s strategy of making low-priced essentials profitable, coupled with its efficient cost structure, will ultimately result in $8-$9 of free cash flow per share. Nowak also anticipates corporate efficiencies to generate further savings, potentially between $2 billion and $4 billion.
Nowak sees Project Kuiper, Amazon’s satellite broadband network, as a manageable project with minimal impact on the company’s P&L. He believes that Amazon’s growing net cash balance increases the likelihood of capital returns in fiscal 2025.
Amazon’s recent focus on efficiency, as outlined in a letter from management, is anticipated to create an EBIT cushion and drive upside in fiscal 2025.
Nowak has projected Amazon’s fiscal 2024 revenue to reach $633.96 billion, with earnings per share (EPS) at $4.80. For fiscal 2025, he anticipates revenue of $697.94 billion and EPS of $5.93.
At the time of publication, Amazon’s stock was down 1.15% at $182.64.
