AMZN is the only “Mega-Cap” worth owning, Roth says

It’s the best “Mega-Cap” stock you can own.

That’s the opinion of Roth MKM analyst Rohit Kulkarni, who in a research update to clients December 18 raised his price target on Amazon (Amazon Stock Quote, Chart, News, Analysts, Financials NASDAQ:AMZN).

“We are raising our operating margin and FCF assumptions for ’24 and ’25,” the analyst explained. “Our PT goes from $165 to $180 based on 16.0x ’24E EBITDA as well as a detailed sum-of-parts valuation analysis. We expect muted Internet industry tailwinds in ’24. But AMZN is the only mega cap where we model accelerating revenues AND expanding op. margins. AMZN is our top Mega Cap Pick for ’24, followed by META, and then GOOGL.”

In the research update to clients December 18, the analyst maintained his “Buy” rating on the stock.

Kulkarni says after what actually turned out to be a great 2023 for big cap tech, he expects those tailwinds will subside.

“We expect muted Internet tailwinds in 1H24; large/mid-cap multiples have recovered: Internet companies experienced triple tailwinds in 2023: (1) Lapping Covid Comps from 2022; (2) Supportive consumer discretionary macro with falling inflation; and (3) Micro/industry improvements to combat privacy headwinds,” he wrote. “During 2023, valuation multiples recovered, particularly for mid- and large cap companies, going back to early 2022 levels. In 2024, we expect a return to normalized growth with e-Commerce & online advertising growing HSD% to low-teens%, and online travel likely experiencing more muted growth, with a soft tailwind from quadrennial catalysts such as Summer Olympics, and U.S. Presidential Elections. AMZN is the only mega cap tech company with positive fundamentals in ’24: AMZN should demonstrate accelerating revenues and expanding operating margins in 2024 vs. 2023 levels. We believe consensus continues to underestimate potential FCF acceleration in 2024 and 2025 driven by a combo of improving fundamentals and declining CapEx.”

The analyst thinks AMZN will post EPS of $2.64 on revenue of $571.4-billion in fiscal 2023. He expects those numbers will improve to EPS of $3.60 on a topline of $623.9-billion the following year.

“Our differentiated point-of-view on AMZN is based on: (1) We believe AWS gains Cloud market share in 2024, as measured by share of incremental dollars moving towards the Cloud. We believe AMZN’s AI innovation and fullstack strategy leads to accelerating growth, particularly in 1H24. (2) We believe N. America Retail margins continue pathway toward prior peak levels seen in 2018. We expect N. America Retail margins to approach 8% in 3Q ’25,” Kulkarni concluded.