Amazon.com Inc (NASDAQ: AMZN) ended roughly flat on Monday even after a Morgan Stanley analyst reiterated the tech behemoth his top pick for 2023.
Amazon stock to benefit from layoffs
Brian Nowak recommends that investors buy Amazon stock here as it has upside to $150 – more than a 50% premium on its current price.
His bullish view is based primarily on the second round of layoffs the multinational announced last week (read more). Nowak wrote:
We believe a majority of reductions are from AWS/Advertising, which should help protect Amazon Web Services EBIT through near-term deceleration and drive better long-term leverage.
In February, Amazon reported its least profitable fourth quarter since 2014. Versus their year-to-date high, shares of the Seattle-headquartered firm are down more than 10% at writing.
AWS margin to climb 50 bps this year
Nowak now expects Amazon Web Services to see a 50 basis points increase in full-year EBIT (earnings before interest and taxes). In 2024, he added, its EBIT margin would likely gain another 75 basis points.
Companywide, the Morgan Stanley analyst forecasts a 5.0% growth in EBIT this year to $1.1 billion and a 6.0% increase next year to $2.1 billion. His research note also said:
Our `23/`24 EBIT rises … as incremental headcount cuts speak to the levers AMZN has to pull to scale EBIT (in addition to continued fulfillment and shipping cost per unit improvements from leverage on the overbuild).
Nowak likes Amazon stock for its eCommerce business as well. He expects the scale player to benefit as eCommerce continues to grow off a higher post COVID base.
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