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JPMorgan On Amazon Stock: 29% Upside Potential

Amazon Maven on TheStreet logo Amazon Maven on TheStreet 10/15/2021 Ciro Ribeiro,Daniel Martins

Amazon stock has fallen victim of its own success: shares of the e-commerce giant have lagged the S&P 500 since its disappointing Q2 earnings day. But JPMorgan is optimistic and sees upside ahead.

Since the release of Amazon’s most recent earnings report, investors have watched shares of the cloud and e-commerce giant tank by 11%. Amazon stock  (AMZN) - Get Amazon.com, Inc. Report underperformed an already weak S&P 500 by three percentage points over the period, leaving some to question: is AMZN still a good investment?

According to experts at JPMorgan (JPM), the answer is yes. Today, the Amazon Maven presents the main reasons why five-star rated analyst Doug Anmuth believes that Amazon stock is about to surge, producing an estimated 29% in gains through 2022.

Figure 1: J.P. Morgan offices in Hong Kong. Dreamstime.com © Provided by Amazon Maven on TheStreet Figure 1: J.P. Morgan offices in Hong Kong. Dreamstime.com

(Read more from the Amazon Maven: Amazon Stock Price Is Too High, Says This Expert)

Getting back on track

As the Amazon Maven mentioned recently, the impact of the pandemic on shopping habits led analysts to overestimate Amazon’s revenues for the current year. This is the very first reason why JPMorgan believes that AMZN will get a green light to climb again: “[the stock is heading] closer to the last quarter of difficult COVID-19 comps in the first quarter of 2022", which should help to reset sentiment.

Once 2020 results are left in the rearview mirror, the e-commerce company will face more realistic, non-pandemic-inflated projections. As mentioned by Mr. Anmuth himself, "further downward revisions to 2022 profit estimates would help lower the bar and potentially create more of a clearing event”.

(Read more from the Amazon Maven: Is The Sky Falling For Amazon Stock?)

Holiday upside

Another reason why Mr. Anmuth believes Amazon stock will head higher is the beginning of the holiday season. Since the market has been so cautious towards AMZN lately, the stock has been trading at lower multiples than would otherwise be considered reasonable. The holidays, on the other hand, could be the bullish catalyst that investors need to own the stock again.

Lastly, there is the potential for an increase in Prime subscription price in 2022. Considering an estimated 150 million US Prime members in 2021, a $20 dollar hike in annual fee would lead to an extra $3 billion heading towards Amazon’s coffers.

At first glance, the figure may not seem like much, given Amazon’s revenues of $380 billion in 2020. However, keep in mind that nearly all the price increase would flow cleanly into Amazon’s operating income. On a 2020 basis, this would represent growth of nearly 15% in pre-tax profits.

What do other experts say?

Other reports published recently also support the bullish thesis. Mark Mahaney from Evercore ISI talked to 15 industry experts, including former Amazon employees, during the research firm’s Amazon Day Symposium. The analyst liked what he saw and issued a hefty $4,700 target price.

Wolfe Research’s Deepak Mathivanan, on the other hand, lowered his price target on AMZN modestly to $3,850 from $3,900, despite maintaining an outperform rating. Sitting closer to the consensus price target is Goldman Sachs’ Eric Sheridan, who is bullish and believes that AMZN shares are worth $4,250.

Twitter speaks

The holiday season and easier, non-pandemic comps in the horizon are reasons why JPMorgan believes that Amazon stock will climb soon. Is now, nearly 12% below all-time highs, a good time to own AMZN?

Get more expert analysis on AMZN

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)

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