Amazon.com, Inc. (NASDAQ:AMZN) is off to a rocky start to 2022, down 35.5% year-to-date. However, Bank of America analyst Justin Post said this week that Amazon is well-positioned for a big year in 2023.
The Amazon Analyst: On Monday, Post reiterated his Buy rating and $188 price target for Amazon and said Amazon's past logistics investment cycles paint a bullish picture for the company heading into 2023.
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The Amazon Takeaways: Post said Amazon's margins have been pressured in large part due to overcapacity and overhiring. From 2019 to 2021, Amazon's logistics square footage increased by 85% and its headcount doubled.
Yet its unit growth in that time was only 51%, suggesting Amazon was burned by operating inefficiencies. Analysts are projecting just a 1.9% operating margin for Amazon's Retail segment in 2022, the lowest margins of the last 15 years. Fortunately, Post said Amazon has a long history of growing into its overcapacity.
"We highlight 2018, when N.A. Retail margins improved 2.5pts y/y, and see potential for even better y/y improvement in 2023 given unusual capex & fulfillment capacity growth vs unit growth over the past 2 years, plus unprecedented recent project cancellations & mgmt. commentary on overstaffing," he said.
Using 2018 as a guide, Post said Amazon has the potential for $10 billion in capex savings and $4 billion in headcount savings. Amazon has invested about $71 billion in Amazon Logistics since 2020, but Post estimates Amazon has a roughly $100-billion incremental value opportunity if it can capture just 5% of global e-commerce delivery market share by 2026.
Post said investors should anticipate significant margin improvements for Amazon as e-commerce growth accelerates in 2023.
Benzinga's Take: Even after the significant pullback in 2022, Amazon shares still aren't particularly cheap at current levels, trading at a forward earnings multiple of about 43.
Even at a $1.1-trillion market cap Amazon remains a growth stock, so it's understandable why the stock has been pressured after revenue growth slowed to just 7.3% in the first quarter.
