As if Amazon.com (AMZN) wasn’t stealing enough market share in online shopping, Wall Street firm DA Davidson thinks it will gain more of it in the retail sector, prompting it to start coverage with a buy rating and a $1,300 price target, and predicting even higher five years from now.
DA Davidson analyst Tom Forte, who thinks the stock will hit $1,800 by 2022, said the $13.7 billion megapurchase of Whole Foods Market should help it steal more of consumers’ shopping dollars and that the e-commerce giant will likely do more on the mergers and acquisitions front. At $1,300, the analyst thinks shares can appreciate around 33% more this year. At $1,800, that represents a close to 84% jump from where the stock is trading Thursday at $979.42 a share.
"The Whole Foods acquisition gave them 460 excellent storefronts and a severe advancement in their grocery effort," said Forte in an interview with CNBC discussing his initiation of coverage. "And to me, the big difference is this was an e-commerce company that's adding on physical stores. They have a huge technical advantage versus the legacy operators that had technology to build stores and were trying to overlay e-commerce." (See more: Alibaba Building Physical Mall in China: Report.)
Why So Giddy?
Late last month, Amazon’s purchase of Whole Foods closed and already consumers are seeing lower prices and a pick up in traffic. The e-commerce giant is using that purchase to springboard its move into groceries and to have more of a physical presence around the country. The move sent shudders through the grocery industry, which is well aware of the disruptive nature of its latest, and fiercest, rival. One only needs to look at the woes at department store Macy’s Inc. (M) for example. It has been shuttering stores and laying off workers as it contends with the might of Amazon.
But it's not just the acquisition of the organic supermarket that has gotten Davidson and Forte so giddy. The analyst also pointed to Amazon Web Services (AWS), the company’s cloud computing platform that has long been a market leader. He thinks AWS will enable the company to continue showing profitable revenue growth down the road. Forte did warn the cloud unit is facing increased competition from the likes of Microsoft Corp. (MSFT) and Alphabet Inc.’s (GOOG) Google. "If you look at their buckets of profitability, it's their AWS cloud computing first, their third-party retail sector second," Forte told CNBC. "It looks to be an open-ended growth story for Amazon."
The call on the part on the Wall Street firm comes on the same day that the Seattle-based online retailer announced it was gearing up to spend more than $5 billion on a second headquarters in the U.S. The company said it is accepting requests for proposals from local and state government officials and that it expects to house 50,000 high paying jobs in the new location. (See also: Amazon to Commit $5B for a Second Headquarters.)