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Amazon is a Buy, says Roth Capital

Roth Capital Partners analyst Rohit Kulkarni reviewed the latest quarter from Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN) in a Friday report to clients, saying share price weakness should present a buying opportunity for investors.

E-commerce giant Amazon beat analysts’ consensus estimates with fourth quarter net sales of $149.2 billion, up nine per cent year-over-year, and GAAP EPS of $0.03 per share compared to $1.39 per share a year earlier. Analysts had been calling for $145.7 billion in revenue and $0.17 per share in earnings. 

Amazon also beat its own guidance for the Q4 2022, which had called for revenue between $140 and $148 billion. At the same time, management struck a cautious tone in its commentary, saying slower growth is likely over the next few quarters, as businesses become more careful with their costs and thus with their spend on cloud computing, a major part of Amazon’s income through its AWS segment. As well, Amazon said its retail business will likely feel the pinch of consumers spending less during the current recessionary period.

“Our relentless focus on providing the broadest selection, exceptional value, and fast delivery drove customer demand in our Stores business during the fourth quarter that exceeded our expectations—and we’re appreciative of all our customers who turned to Amazon this past holiday season,” said Andy Jassy, Amazon CEO.

Over January, Amazon shares went up with the rest of the market, returning 23 per cent for the month. But the stock is still a long way off its highs set in late 2021 before the market turned sour on tech and growth stocks.

But Kulkarni sees upside from current levels. The analyst maintained a “Buy” rating on AMZN and one-year target price of $125.00 per share, which at the time of his report’s publication represented a projected return of 10.7 per cent.

“Amazon reported 4Q revs above guidance and Street estimates despite growing Cloud softness. 4Q profits include significant one-time costs that obfuscate improvement in N. America retail margins. We lower AWS revenue and op. profits but increase Retail revenues & Retail op. profits. Our price target stays at $125 based on a reasonable Sum-Of-Parts, implying ~12x ’24E EBITDA,” Kulkarni wrote.

Kulkarni noted that Amazon’s fourth quarter AWS revenue of $21.4 billion was under the Street’s forecast at $21.87 billion, while its Advertising revenue of $11.56 billion was a bit above the consensus call for $11.38 billion. 

Up ahead, the analyst is calling for 2023 revenue of $546.443 billion in revenue, representing a year-over-year improvement of six per cent, and 2023 EPS of $1.74 per share.

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