Consumer discretionary, Inc. (AMZN) Price Target Raised at BMO; Here’s Why

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Amazon shares climbed to a new 52-week high after BMO Capital made optimistic comments on Prime’s growth prospects, Inc.’s (NASDAQ:AMZN) main ecommerce platform, Amazon Prime, has been the leading factor for the breathtaking performance of the online retail giant. In fact, Amazon stock’s price target has received a boost at the Street, solely on the back of strong expectation from Prime for the second half of 2016. The stock traded 1.92% higher at $804.91 as of 12:05 PM EDT today, carving a new 52-week high today.

BMO Capital updated its thesis on Amazon today, maintaining its Outperform rating and raising its price objective by $25 to $900, representing potential upside of 13.96% over the last closing price. While the ecommerce giant’s revenue forecast for the current quarter seems appropriate, the research firm bumped up its estimate for the last quarter which was already above the consensus estimate, accrediting enhanced confidence in Amazon Prime’s growth potential.

Daniel Salmon, the analyst at BMO Capital, estimated that Prime is heading into the second half of this year with 26 million more users than it had when it headed into the second half of the last year. The analyst emphasized on this, stating that Prime members are spending more compared to non-Prime members.

By the end of the second quarter of 2016, the company had 76 million Prime users; this number is expected to grow to 93 million by the year-end, according to the research firm. Mr. Salmon expects Prime user base to hit 163 million by the end of 2018.

He raised his revenue forecast from $45.6 billion to 46 billion for the 4QFY16, compared to consensus estimate of $44.6 billion. The earnings per share estimates for 2016 and 2017 were raised by $0.27 to $5.86 and by $0.32 to $10.29, respectively.

Additionally, BMO Capital expects Amazon to generate record Prime subscription fees of $6.9 billion this year, compared to the $4.5 billion it generated in 2015. If it does meet this estimate, the fees would more than double by the end of 2018.

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