Amazon Shares Could Hit $3K By 2020, Jefferies Says After Sum-Of-The-Parts Valuation

Despite Amazon.com, Inc. AMZN's stellar run, a Jefferies analyst said Tuesday that the stock remains undervalued.

The Analyst

Analyst Brent Thill maintained a Buy rating on Amazon and raised the price target from $2,185 to $2,350.

The Thesis

Many of Amazon's embedded growth opportunities are underappreciated, and optionality from new initiatives is not reflected in the stock, Thill said in a Tuesday note. (See his track record here.) 

Further upside is likely to be driven by nascent businesses such as health care, smart home devices, home security, entertainment, grocery, B2B and office supplies, the analyst said. 

The momentum of Amazon's core retail business is likely to accelerate further, prodded by Prime and best-in-class fulfilment capabilities, Thill said. 

The AWS business could drive overall revenue growth and margin accretion, with additional opportunities to be found in SaaS and on-premise and hybrid cloud, according to Jefferies. 

Thill said he expects emerging businesses such as advertising to not only help expand Amazon's total addressable market but also to drive margin improvement.

The AWS, advertising and subscription businesses are growing two times faster than the core retail business, and are more profitable, the analyst said. The three businesses should contribute a combined $115 billion-plus in revenue by 2021, accounting for 27 percent of Amazon's revenue and 46 percent of the company's value, he said. 

" ... On a growth-adjusted basis, the name continues to screen very favorably against internet and retail peers, and we expect multiples to expand over time." 

Jefferies' sum-of-the-parts valuation suggests over 50-percent upside for Amazon, suggesting a potential value of $3,000 per share by 2020.  

The Price Action

Amazon shares have soared about 65 percent year-to-date.

The stock was up 0.9 percent at $1,951.75 at the time of publication Tuesday. 

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Photo courtesy of Amazon.