© Reuters. Amazon (AMZN) Upside Supported by SOTP analysis – Jefferies
By Sam Boughedda
Amazon’s (NASDAQ:) upside is supported by SOTP analysis, according to Jefferies analysts.
The analysts, who have a Buy rating and $165 price target on Amazon shares, told investors in a research note that the firm’s updated SOTP “values AMZN’s non-retail businesses at $1.3T (vs EV of $1.2T), which implies the current stock price is ascribing virtually zero value to Core-Retail.”
“Our SOTP implies the current valuation is ascribing virtually zero value to Core-Retail, resulting in a $29/ share free option at AMZN’s current price as the stock already embeds meaningful headwinds from a recession/ cost inflation, which limits downside and creates an attractive risk-reward,” they explained.
Furthermore, Jefferies believes Amazon’s current stock price already embeds headwinds from a recession/cost inflation and expects the market to “attribute greater value to Core-Retail over time” as cost headwinds are addressed, and profitability expands.
“AMZN is facing $12B-$16B of cost headwinds in 2022, resulting from a combination of inflation, lower productivity and fixed cost deleverage,” declared the analysts. “AMZN has already begun addressing these cost headwinds, having realized a $2B sequential cost reduction in 2Q (from 1Q), driven by cost leverage and improved route density. AMZN also expects to continue reducing costs throughout 2022, which should help drive growth in Op Income even if macro pressures causes a slowdown in Sales.”
Amazon shares rallied 4.5% in Tuesday’s session.
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