Wall Street may be underestimating Amazon stock when it comes to the behemoth's massive e-commerce business, analysts say.
A trio of analyst reports this week said improved e-commerce fulfillment capabilities are delivering upside for Amazon, among other factors. Amazon sits on the "cusp of a margin renaissance," Piper Sandler analyst Thomas Champion said in a note to clients Thursday.
"A second look at comments from the 2Q earnings call suggest to us AMZN may have reached a new threshold in Shipping & Fulfillment cost efficiency," Champion wrote. "We see evidence of this emerging in Gross Margins & 3Q23 incremental operating income guide was by far the strongest in company history."
Champion boosted his target price for AMZN stock to 185 from 175. Further, the report cited comments from Amazon Chief Executive Andy Jassy on the company's earnings call earlier this month. Jassy noted the company had split its U.S. transportation network into regions.
"We keep a broad selection of inventory in each region, making it faster and less expensive to get those products to customers," Jassy said.
Amazon stock edged up 1.1% to close at 133.26 on the stock market today.
Amazon Stock: Wedbush Adds It To Best Ideas List
Earlier in the week, Wedbush analyst Scott Devitt initiated coverage of AMZN stock with a price target of 180. Also, Wedbush added Amazon to its best ideas list, with the company joining stocks such as Apple, Microsoft and Tesla.
"We believe the core retail business is underappreciated following (1) a period of weak growth as e-commerce broadly slowed against challenging pandemic comps, and (2) operating margin compression due in part to lower fulfillment utilization after its network more than doubled in just three years," Devitt said in his note to clients.
Further, Amazon's fulfillment infrastructure spanned 541 million square feet, Devitt noted.
"With comp issues fading and capacity utilization rising, Amazon's core business is now well positioned with an industry-leading fulfillment infrastructure delivering 4x as many same-day or (next-day) orders in the U.S. versus 2019," Devitt wrote.
Eyeing An AWS In Rebound
Meanwhile, Loop Capital analyst Rob Sanderson boosted his target price for Amazon stock to 200 from 180.
"We continue to see meaningful upside in retail segment margin as fulfillment operations normalize," Sanderson wrote in his note. "The retail business is structurally much higher margin than prior to Covid with meaningfully more advertising and commission revenue."
Also, Sanderson wrote that Wall Street is underestimating the Amazon Web Services cloud business. AWS has been hit in recent quarters by corporate cost-cutting.
"We think the Street is now mismodeling the growth recovery at AWS, presumably not correctly factoring resilience of gross revenue as the business absorbs meaningful revenue attrition on cost-down efforts," Sanderson wrote.
AMZN stock got a boost from an earnings beat on Aug. 3, reporting an 11% revenue increase to $134 billion. The stock has gained 58% this year. It holds a Relative Strength Rating score of 91 out of a best-possible 99, according to IBD Stock Checkup.
But Amazon stock is still in recovery from a pandemic-fueled growth spurt. Last year, Amazon posted its first fiscal year loss in seven years. AMZN shares ended July down 29% from a split-adjusted 188.65 peak in July 2021.
