Why Amazon Stock Is Arguably The Holy Grail, Although Cloud Buyers Are Becoming 'More Surgical'

Although Evercore ISI Group lowered its price target on Amazon.com, Inc. AMZN shares last month, the analyst firm still expected the stock to nearly double over the next year.

Here's why Evercore was telling clients with longer-term investing horizons to buy Amazon with both hands, calling it a "buffet buy."

What Happened: Evercore analyst Mark Mahaney maintained Amazon with an Outperform rating and lowered its price target from $170 to $150, citing new data showing ongoing softness in online retail and cloud computing demand.

"Three recent datapoints on the Retail side and one on the Cloud Computing side drive our estimates cuts," Mahaney wrote in a December note to clients.

A retailer sales survey showed demand for discretionary products was slowing relative to staples. Discretionary goods sales slowed in late October before picking up around Thanksgiving. 

"But since Thanksgiving, discretionary sales have decelerated again," Mahaney said.

A majority of Amazon's retail business is discretionary. Evercore estimated it could be as high as 70% or 80%.

A separate holiday survey told a different story. 

"There is clearly a sizeable re-shift back to Online and Mobile Commerce channels that contrasts sharply with the ’21 Holiday re-opening trends, and Amazon is the clear winner across almost every shopping category in terms of consumer spend intentions," Mahaney said.

Still, the analyst warned that 2022 was the first year "buying less expensive gifts" surpassed "increase online shopping" as a way to save money this holiday season.

Mahaney also highlighted November retail sales data, which pointed to weakness in discretionary spending. The biggest weak spots were in electronics, home furnishings and general merchandise, which were usually strong categories for Amazon.

See Also: Santa Is Feeling Inflation Too: US Retail Sales Fell Sharply In November

The aforementioned single data point on the cloud computing side of things surrounds Amazon's re:Invent event. Key takeaways suggested enterprise cloud purchasers have become "slightly more surgical" amid the challenging macro environment, Evercore said.

Although recent data made Evercore adjust its near-term outlook, the firm highly recommended Amazon for investors with time horizons greater than two years.

"While the company will be negatively impacted by the probable ’23 Recession and likely requires Street estimates cuts on both the top and bottom line, in part due to insufficient cost actions to date, AMZN remains arguably the highest quality asset we cover in terms of Revenue and Profit outlooks," Evercore said.

Related Link: US Watchdog Nudges Amazon Over Laxity In Recording Workhouse Injuries

AMZN Price Action: Amazon has a 52-week high of $170.83 and a 52-week low of $81.43, according to Benzinga Pro.

Originally published on Dec. 19, 2022

Photo: Courtesy of Amazon.