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MoffettNathanson analysts started Amazon (NASDAQ:AMZN) at Outperform with a $118 price target in a research note on Tuesday. They said that with profitability up and capital intensity down, it equals multiple expansion.
“We forecast a material step down in capital investment on fulfillment and sit below the Street on capital intensity with capital expenditure of $49 billion and $55 billion in FY23/FY24 compared to consensus of $57 billion and $59 billion, respectively. Our outlook generates 2023 FCF of $38 billion vs. consensus of $29 billion and FY24 FCF of $56 billion vs. consensus of $49 billion,” wrote the analysts.
However, they stated: “Profit beats and declining capital intensity are the formula for multiple expansion.”
“For three years, Amazon has experienced multiple compression as EBIT estimates declined and capital intensity was greater than expected. We believe we are at the end of the tunnel,” the analysts continued. “Historically, Amazon trades on EBIT/EBITDA multiple, not a sum of the parts. Accordingly, we value Amazon on the five-year median EV/EBIT multiple of 45x on FY23 EBIT for a share price of $118.”
