A lot of tech companies make promises of huge earnings down the road but not all can deliver as solidly as Amazon (Amazon Stock Quote, Chart, News NASDAQ:AMZN), says Barry Schwartz, portfolio manager and chief investment officer for Baskin Wealth Management.
Schwartz argues that with the boom in e-commerce investors would be missing out if they weren’t buyers even at current levels.
“Amazon has been hiring workers like crazy, as we know, and planning to open up a number of new warehouses,” Schwartz said, in conversation with BNN Bloomberg on Friday. “We love Amazon and we think this is one of the greatest companies.”
“We love all the FAANG stocks. I could clearly see Amazon doubling its earnings very quickly over the next couple of years,” Schwartz said. “We expect the company to earn $100 a share very soon — not this year not next year but in the next couple of years, and I still think it’s a reasonable value to buy a company here that has all the right tailwinds.”
Amazon announced last week that almost 20,000 of its workers have tested positive for COVID-19, a number which as a percentage of the company’s overall employee group is still below US infection rates, management said. Amazon provided the update, saying it was aiming to ramp up its daily testing to 50,000 tests across 650 sites in a few weeks.
And while the COVID-19 pandemic has hit Amazon’s operations, the company’s business has far from suffered. Amazon saw sales jump by 40 per cent in its latest quarter to $88.9 billion, while net income ballooned to $5.2 billion or $10.30 per share compared to $2.6 billion or $5.22 per share a year prior. Those numbers beat analysts’ expectations, as well, where the Street was calling for earnings of $1.46 per share on a topline of $81.56 billion. (All figures in US dollars.)
The upswing in business has come as more people rely on online shopping and home delivery during the remote work and stay-at-home environments common worldwide during the pandemic. And Amazon has responded by building out its operations, with the company last week announcing plans to hire 3,500 more workers in Canada via expansions of its footprint in Vancouver and Toronto.
“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions,” said CEO Jeff Bezos in the second quarter press release. “And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation and AWS.”
Amazon’s share price has already been the story of the year. Where AMZN spent the better part of a year and a half flirting with the $2,000 per share mark, starting in the fall of 2018, it took the stock less than three months to go from $2,000 to $3,000.
Amazon is up 72 per cent for 2020 and up an incredible 400 per cent over the past five years.
But all those gains don’t mean the stock’s better days are all behind it, said Schwartz. “I’m pretty certain that the company’s business is going to do very well over the next two to five years. As a result, I think you should buy a stock,” he added.
Schwartz is certainly not out on a limb with his bullish take on AMZN. On September 17, RBC Capital analyst Mark Mahaney issued a report to clients arguing that the company was still being underestimated.
“We believe investors under-appreciate the magnitude of the strategy behind, & the implications of, the dramatic buildout in Amazon’s logistics network (what we are calling AMZL)”.
Mahaney stuck with his price target of $3800 on Amazon, which at the time of issue implied a return of more than 20 per cent.
Even long time Amazon critics are hopping on board the bull train. Bernstein analyst Mark Shmulik recently upgraded AMZN from to “outperform” from “market perform”.
The analyst explained his change in thinking.
“COVID has pulled forward secular trends, from e-commerce to digital advertising and cloud, with Amazon as a primary beneficiary across all three revenue pools,” Shmulik argued. “Amazon has executed incredibly well, pivoting its operations and inventory to in-demand verticals — with flexibility and speed we didn’t expect.”
Shmulik has a $3400 target on the stock. Business Insider reports that Amazon now has 82 “buy” ratings and just one “Sell” rating.
And AMZN is now pulling even more bullish predictions from the street. Pivotal Research analyst Michael Levine recently upgraded Amazon to $4,500. He argued that people are missing the boat on the company’s huge potential with regard to advertising and says most have gotten the story wrong from a “Sum of the Parts” perspective.
Advertising, said Levine, has been a “far greater contributor to overall non-AWS EBIT margins than the street recognizes. Said differently, If advertising was viewed as a stand-alone business unit… it would represent well north of 300% of 2020E non-AWS EBIT.”
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