Amazon (AMZN) will deliver one of this earnings season’s more intriguing financial statements when it reports Q4’s results today after the bell.
This name has been out of favor with investors for a while following the huge height-of-the-pandemic success, as the company – somewhat unsurprisingly - has been unable to sustain the huge growth sprout Covid-19 provided.
Not only that, but Amazon has also been spending heavily, in an effort to expand its fulfillment network. In 2021, the company opened more than 350 facilities (twice as many as 2020’s openings), which it also had to staff before holiday shopping season kicked into action. Taking into account the rising labor costs and other expenses, Amazon’s guide has called for ~$6 billion of incremental expenses compared to 4Q20.
A such, Jefferies analyst Brent Thill believes the “4Q setup is mixed, as discounted valuation is offset by potential downside to 1Q consensus Op Income caused by rising labor costs.”
Given the disruption in the supply chain and labor shortages, then, the analyst believes that consensus expectations for profitability are “somewhat optimistic.”
Furthermore, Thill believes that due to omicron, Covid-related costs have probably increased beyond the company’s guidance of ~$2.5 billion. Accordingly, Thill’s operating income forecast for the quarter is $380 million below the Street’s call. Ominously, sensing labor cost pressure “persisting in the short- to medium-term,” the analyst thinks there’s a “high probability” Amazon’s guide for Q1 will come in below consensus.
It's not all doom and gloom, however. While the short- to medium-term won’t bring relief, further down the line, Thill expects Amazon will flourish once again. “We see AMZN as a 2H22 story, aided by easing comps, improved cost visibility, moderating capacity build-out, continued momentum at high-margin businesses (AWS/ Adv), and ~40% multiple compression since mid-2020,” the 5-star analyst summed up.
Bottom-line, what does it all mean for investors? Thill rates the stock a Buy whilst sticking to a $4,000 price target. Should the figure be met, investors are looking at one-year gains of 34%. (To watch Thill’s track record, click here)
None of Thill’s colleagues disagree with his assessment; all 21 recent reviews are positive, making for a Strong Buy consensus rating. Shares are expected to be changing hands for ~51% premium a year from now, considering the average price target clocks in at $4,190. (See Amazon stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.