Long-time tech analyst Brent Thill has crunched the numbers on Amazon, and could make a strong case on the tech giant being 70% undervalued at current valuation levels.
Or looked at a different way, the company could someday have a market cap of $3 trillion as opposed to the $1.72 trillion it sports today.
"Our sum-of-the-parts analysis shows ~70% upside over the next three years [for Amazon], driven by Amazon Web Services and Advertising. This implies Amazon's market cap approaches $3.0 trillion by 2024 and this does not include potentially meaningful contributions from multi-billion dollar opportunities in health care, home security, smart-home devices, and entertainment. The company also has room for further expansion in areas such as apparel, B2B [business-to-business], and SaaS [software-as-a-service]," Thill wrote in a new research note.
Thill says his sum-of the parts analysis warrants a $5,700 stock price for Amazon. But he is quick to note his price target remains $4,000 with a Buy rating, despite the pathway to larger gains for the stock.
"Our sum-of-the-parts analysis is purely illustrative and does not reflect our official price target. We believe evaluating Amazon over a longer period (based on 2024 estimates) helps provide perspective in the face of near-term disruptions/volatility from the pandemic. We also see Amazon's discount to its sum-of-the-parts narrowing over time, making it a good indicator of long-term valuation. Note we are not attributing any value to Amazon health care initiative, which is addressing $350 billion in U.S. Rx spending and could help increase engagement/frequency among existing users while also helping attract additional Prime members," explains Thill.
Amazon shares rose slightly to $3,428 on Tuesday's session.
To be sure, Amazon's stock this year hasn't traded anything like one on a collision course with a $5,700 price. Year-to-date, Amazon shares are up 5%, versus a 10% gain on the S&P 500 and 8% pop on the Nasdaq Composite. It's the third worst-performing component of the closely watched FAANG index (Facebook, Amazon, Apple, Netflix and Google) of tech giants — Apple shares are up modestly on the year while Netflix has gained 2%.
The tepid action in Amazon reflects concern among analysts of slowing growth in 2021 after a surge in business in 2020 during the onset of the pandemic. But Wall Street analysts such as Thill have out in defense of Amazon in the lead-up to its first quarter earnings release. Their collective argument: business is still pretty darn good for Amazon.
"While the company will be up against difficult top-line comparisons in coming quarters, we see a favorable backdrop for shares through the balance of 2021 as 1) top-line growth rates are likely to remain robust (in the 20% range, by our estimates), 2) AWS and cloud computing trends remain strong, and 3) profitability gains materialize as high-margin business segments scale further and as Amazon laps heavy investment made in 2020 (including COVID-related spend and fulfillment center expansion)," Guggenheim analyst Robert Drbul said in a note earlier this month.
Like Thill, Drbul has a $4,000 price target on Amazon's stock.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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