Investing.com - Citigroup takes a more positive stance on Amazon (NASDAQ:AMZN), lifting its price target, saying it remains one of the bank’s top picks across the internet sector.
The U.S. bank has taken a look at Amazon’s advertising and retail businesses in North America, and has lifted its operating income projections, expecting operating income to reach 10% margins in ’25E on continued advertising strength and improving retail efficiencies.
“Based on our analysis of Amazon’s Advertising, Retail, and AWS business units, we now project ‘25E Operating Income to be ~$73 billion … and while AWS remains the largest contributor to OI, we look for core retail margins to expand significantly on improving efficiencies,” analysts at Citi said, in a note dated April 24.
The bank sees Amazon’s retail business as the main driver of its margin expansion thesis, saying investments in regionalized shipping have resulted in lower cost to serve per unit and shorter transport distances.
Additionally, Citi says retail conversion rates are rising as shipping speeds increase and Amazon increasingly gains share of non-discretionary purchases.
“As importantly, we believe International Retail can turn OI profitable by 2026E as more markets turn profitable,” Citi added.
As a result of all this, Citi lifts its 12-month share price target to $235 from $215, keeping a ‘buy’ rating.
Amazon stock closed Tuesday at $179.51, up more than 18% year-to-date.