Shares of Amazon (AMZN 1.35%) climbed higher on Tuesday, adding as much as 2.6%. As of 1:41 p.m. ET, the stock was still up 1.2%.
The catalyst that sent the e-commerce titan higher was a bullish take from a Wall Street analyst.
Best idea
Analysts at Bernstein named Amazon the firm’s “Best Idea for 2024,” according to online investment publication The Fly. The analysts maintained an outperform (buy) rating and a $175 price target on the shares, which suggests additional upside potential of 21% compared to Monday’s closing price.
While the investment management firm didn’t furnish much in the way of commentary to explain the call, what it did say provided some clues. Bernstein said it was increasing its estimates for earnings before interest and taxes (EBIT) for Amazon Web Services (AWS) for 2024 “to ponder margin strength and fixed-cost leverage.”
This suggests the analyst believes that Amazon will be able to wring more profits from every dollar of cloud services revenue it makes next year.
A change of heart
While Amazon investors are likely cheering the call, it’s interesting when placed in the context of Bernstein’s previous commentary on Amazon.
In an open letter to Amazon in June, Bernstein’s Mark Shmulik said that while he was “clearly optimistic about the road ahead,” he called on management to go back to basics and “day one” thinking. He added that the company was “simply pursuing too many ideas, with weaker ideas taking away the oxygen, capital, and most importantly focus from the truly disruptive initiatives that ‘only Amazon can do.’ “
He cited the company’s as-yet unclear ambitions in healthcare and Project Kuiper (a scheme to deploy a large satellite internet constellation to furnish low-latency broadband internet connectivity) as distractions from Amazon’s more profitable ventures.
Is Amazon stock a buy?
Amazon’s third-quarter results seem to have given the analyst a change of heart, though much of the improvement was the result of the improving macroeconomic landscape. This highlights the short-term thinking that’s widespread on Wall Street and why individual investors should take a longer-term view.
At roughly 2 times forward sales, the stock is selling for a song. Investors should ignore the noise, buy Amazon, and hold for the long term.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
