Amazon (AMZN) was a main beneficiary of the pandemic’s effects. The stay-at-home mandates increased the demand for its offerings as many people went online to buy goods for the first time.
Wedbush analyst Michael Pachter expects the shelter in place (SIP) benefits to subside over time, but to still have “lasting impacts.”
“In particular,” Pachter noted, “We think that new habits learned during the pandemic may be difficult to break for many Prime customers, namely the convenience of grocery shopping. We think that SIP accelerated the growth of Amazon Fresh and we expect customers won during the pandemic to remain customers.”
This is a market that should not be overlooked. In the U.S. alone, the grocery market is worth around $800 billion. Pachter thinks Amazon can grab around 4% of its TAM (total addressable market) – with 2% share claimed by its Whole Foods division and another 2% share for Amazon Fresh.
“Although it is unlikely that Amazon will grow this share by more than 1% or so per year,” Pachter added, “The opportunity is substantial and even 1% market share gain reflects over a 2% lift in overall sales.”
Talking of overall sales, ahead of the e-commerce giant’s Q1 earnings, (Thursday April 29, AMC), Pachter thinks Amazon’s guidance will be “close to the mark,” something that has not happened in a while. That’s not to say this report will be a weak one.
Pachter expects revenue and operating income (OI) for Q1 to come in at $107 billion and $7 billion, respectively, only “modestly higher” than the high end of Amazons’ guidance for revenue between $100 and 106 billion and OI of $3 – 6.5 billion. Consensus has revenue of $104.4 billion and OI at $6.2 billion.
Apart from the “continued expansion into the very large grocery segment,” Pachter counts a stabilizing economy, shelter-in-place (SIP) mandates still being followed in many of Amazon’s markets, and “outstanding execution,” as reasons to believe Amazon will deliver another “strong” report.
All in all, the analyst rates Amazon shares an Outperform (i.e. Buy), along with a $4,000 price target. Investors could be pocketing gains of 16%, should Pachter’s thesis play out over the next 12 months. (To watch Pachter’s track record, click here)
Amazon has the Street’s full backing. All 33 recent reviews rate the stock a Buy, naturally culminating in a Strong Buy consensus rating. The average price target currently stands at $4,118.69, suggesting ~23% upside within the one-year time frame. (See Amazon stock analysis on TipRanks)
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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.
