Amazon Is JP Morgan's Best Pick: Analyst Says Investor Sentiment On Stock Is Near Multi-Year Lows

JP Morgan analyst Doug Anmuth maintains Amazon.com Inc AMZN with an Overweight, lowering the price target from $142 to $135.

Amazon shares are up only 14% over the past three years vs. the SPX, up 63%, and the analyst believes investor sentiment on AMZN is near multi-year lows.

The analyst flagged six concerns for the company, AWS revenue growth deceleration, AWS margin compression, North America operating margins, international losses, recently negative FCF, and Andy Jassy's mark on the business.

Anmuth believes the AWS growth slowdown is macro-driven and that strong secular growth will return under better economic conditions. AWS margins are also tied to top-line change, but he believes several pressures in 2022 will comp or ease in 2023. 

North American operating margin encourages the analyst and believes AMZN is taking meaningful steps to control costs. 

Anmuth expects international losses will be more difficult to control, especially in a more challenging macro environment, but expect continued progress in Germany, the U.K., and Japan, along with signs of discipline in emerging markets. 

AMZN has had a cumulative negative FCF of -$21 billion over the past two years, but improving retail profit and overall capex decline should result in significant FCF inflection in 2023. 

Anmuth believes Andy Jassy is focused on improving North American operating costs in 2023 while improving speed and efficiency. 

The analyst reduced his AWS estimates modestly. However, he believes a near-term hand-off in the story from AWS to retail is taking place and that operating income growth combined with a pullback in capex spending can drive significant FCF inflection in 2023. The analyst expects $21 billion in FCF this year. 

AMZN continues to remain Anmuth's Best Idea.

Price Action: AMZN shares traded higher by 4.27% at $100.31 on the last check Thursday.

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