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Amazon.com’s recent investments in logistics are beginning to deliver rewards, according to RBC analyst Brad Erickson.
Aaron P. Bernstein/Getty Images
Talk about impressive one-day deliveries.
Amazon
.
com stock (ticker: AMZN) rallied more than 12% on Friday after the e-commerce and cloud giant announced its June quarter financial results late on Thursday. Not only did the numbers come in stronger than expected, the results batted away a host of issues that had been hampering the stock for weeks.
Sales increased 7% to $121.2 billion in the quarter, better than Wall Street’s estimate for $119.3 billion, and above the high end of the range of $116 billion to $121 billion management had forecast. Amazon said that adjusted for a $3.6 billion drag from unfavorable foreign-exchange rates, sales would have been up 10% in the quarter, a rebound from two consecutive quarters of single-digit growth.
Amazon Web Services grew 33% in the quarter, in line with estimates, while advertising revenue jumped 18%. And the company’s forecast of $125 billion to $130 billion of revenue implies 15% growth, even after a projected four percentage-point headwind from currency.
“Amazon put up exactly the quarter bulls were looking for,” RBC analyst Brad Erickson wrote in a research note, repeating an Outperform rating on the stock and raising his target for the price to $175, from $144. Adjusted for currency, the company grew 10% at the top line, showing little damage from the current macroeconomic malaise.
Amazon shares were 11% higher at $135.53 near midday.
Amazon investors worried when
Walmart
(WMT) recently reduced its outlook, warning among other things that it would need to do a round of inventory markdowns. But Amazon said it has no need to do that.
According to Erickson, the company’s recent period of intense investment to expand its logistics network is beginning to deliver rewards. “The company’s transition from investment cycle to harvest period is going better than feared,” Erickson wrote.
Amazon Web Services also had a strong quarter, with no indications of slowing demand or pressure from the weakening economy, he said. In fact, the company disclosed on its earnings call that AWS’s backlog of work contracted for but not yet delivered is up 65% from a year ago. The company’s 10-Q filing with the Securities and Exchange Commission shows that figure now sits at just over $100 billion.
At least a dozen analysts raised their target prices on the stock. BofA Global Research analyst Justin Post noted that the company’s accelerating growth gives it scarcity value. “Acceleration stories are hard to find in 2022,” he wrote, projecting 15% sales growth for the third quarter. He continues to rates the stock at Buy, raising his target for the price by $2 to $170.
“We are buyers of Amazon here,” wrote Piper Sandler analyst Thomas Champion, who has an Overweight rating on the stock and lifted his target to $175, from $170. “Revenue acceleration is taking place with more momentum than we thought.”
Stifel analyst Scott Devitt’s note on the quarter is headlined “Amazon Dot Bottomed.” He repeated his Buy rating, and raised his target to $200, from $185.
“The core e-commerce business is showing signs of stabilization despite macro pressure, FX headwinds, and recent caution signs from both online and offline retailers that likely impacted sentiment heading into the report,” Devitt said. Management is showing that it can control costs even amid inflation and has slowed its expansion plans so that capacity matches demand more closely, he wrote.
For Amazon, “the worst …is firmly behind,” Devitt said.
Write to Eric J. Savitz at [email protected]
