What happened
Shares of Amazon.com (AMZN -2.56%) popped 4% on Thursday, following bullish analyst commentary.
So what
JPMorgan analyst Doug Anmuth reiterated his buy rating on Amazon's stock. He now sees the e-commerce titan's share price surging by roughly 30%.
With the S&P 500 broad market index outperforming Amazon by roughly 40 percentage points over the past three years, Anmuth believes investor sentiment surrounding the retail and cloud computing giant's shares is at a multiyear low.
Anmuth acknowledged that Amazon Web Services is likely to see its revenue growth slow and profit margins fall due to the current economic backdrop. However, he argues that the long-term shift to the cloud is still underway.
Moreover, Anmuth applauded CEO Andy Jassy's cost-cutting moves in Amazon's retail division. He expects the company's e-commerce operating margin to continue to improve in the coming quarters. He also sees Amazon's capital expenditures moderating as it slows the buildout of its massive fulfillment network. In turn, Anmuth thinks that Amazon's recent spate of negative cash production will end soon -- and the company will generate a whopping $21 billion in free cash flow in 2023.
All told, Anmuth estimates that Amazon is currently trading for about 9 times his projected earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024. He asserts that Amazon's stock represents a "compelling opportunity" for investors at this price.
Now what
Inflation concerns and recession fears have weighed heavily on Amazon's shares over the past year. But if the e-commerce behemoth can continue to make progress with its expense-reduction initiatives and stabilize its profit margins, Amazon could deliver the gains Anmuth is forecasting to its shareowners.
