On Monday, Morgan Stanley (NYSE:MS) reaffirmed its positive stance on shares of Amazon.com Inc (NASDAQ:AMZN), maintaining an Overweight rating and a $210.00 price target. The firm's analysis highlighted three key reasons why Amazon's success in consumables and essentials could signal robust long-term growth.
The investment bank also identified three strategies for Amazon to enhance profitability, despite the shift toward a product mix with lower average selling prices (ASP) and margins. These strategies include reducing service costs, increasing basket sizes through scale, and leveraging advertising.
The firm's perspective on Amazon's financial outlook remains optimistic, with the stock currently trading at 21 times Morgan Stanley's projected 2026 free cash flow (FCF) for a 30% growth rate in FCF per share compound annual growth rate (CAGR) from 2024 to 2026.
According to the analysts, this valuation represents a roughly 30% discount compared to the median growth-adjusted multiple of Amazon's mega-cap tech peers, which include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL), and Meta (NASDAQ:META).
Morgan Stanley's $210 price target implies a 19% upside potential and is based on a 20 times multiple of the projected 2027 FCF for a 23% growth rate in FCF per share CAGR from 2025 to 2027. This valuation also reflects a 15% discount to the median growth-adjusted multiple of Amazon's peers, which stands at 1X.
The investment bank also underscored the necessity for Amazon to consider a capital return program. This suggestion comes as part of the firm's updated analysis of the company's financial strategies and growth prospects. The implementation of such a program could potentially be a positive step for Amazon, aligning with the analyst's bullish view on the company's future financial performance.
In other recent news, Standard & Poor's has revised its outlook on Warner Bros Discovery (NASDAQ:WBD) to "negative" from "stable" due to concerns over the decline in the company's cable TV business. The company's gross debt stands at $41.4 billion as of June 30.
Meanwhile, Rivian (NASDAQ:RIVN) Automotive Inc. has temporarily halted the production of its electric delivery vans for Amazon.com Inc. due to a parts shortage. However, the production of other vehicle models remains unaffected.
In the streaming sector, FuboTV (NYSE:FUBO) Inc. and Amazon have announced the expansion of Fubo Sports Network's availability to Prime Video Channels in Canada. This marks the network's first availability to Canadian viewers outside of Fubo's own streaming platform.
On the retail front, Walmart (NYSE:WMT) Inc. has revised its annual sales and profit forecasts upwards for the second time this year, following robust consumer spending. The retailer reported second quarter earnings of 67 cents per share and an overall revenue increase of 4.8% to $169.3 billion.
In the tech sector, companies in the United States and Canada are facing significant workforce reductions amid economic uncertainty. Cisco Systems (NASDAQ:CSCO) plans to eliminate 7% of its global workforce as part of a restructuring effort, and other companies like Amazon, Microsoft, IBM (NYSE:IBM), and Intel (NASDAQ:INTC) are also making substantial cuts across their units. These are recent developments that investors should take into account.
InvestingPro Insights
In light of Morgan Stanley's optimistic outlook on Amazon.com Inc (NASDAQ:AMZN), recent data and analysis from InvestingPro provide additional context for investors. Amazon is currently trading at a P/E ratio of 41.43, which is considered low relative to its near-term earnings growth.
This suggests that despite a high earnings multiple, there may be a potential for growth that is not yet fully priced in. The company's PEG Ratio, as of Q2 2024, stands at 0.18, indicating a favorable growth-adjusted valuation when considering its earnings growth rate.
InvestingPro Tips indicate that Amazon is a prominent player in the Broadline Retail industry and operates with a moderate level of debt, which could be a positive sign for investors looking for stability in a company's financial structure. Amazon's cash flows are reported to be sufficient to cover interest payments, a reassuring sign of financial health.
Moreover, with a market cap of $1.86 trillion USD and a revenue growth of 12.32% in the last twelve months as of Q2 2024, Amazon continues to demonstrate its ability to expand and maintain a strong market presence. The company's gross profit margin of 48.04% during the same period reflects its ability to manage costs effectively and maintain profitability.
Investors can find further insights and an additional 22 InvestingPro Tips for Amazon, including analysis of the company's valuation multiples and profitability forecasts, at https://www.investing.com/pro/AMZN. These tips could provide a deeper understanding of Amazon's financial position and future potential, complementing the analysis provided by Morgan Stanley.
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