The increasing use of online shopping and the accelerating growth of its cloud-computing business are among the reasons why Amazon (AMZN) was added to one brokerage’s “best stock ideas” list, it was announced Wednesday.
Jefferies analyst Brent Thill, along with his colleagues, added Amazon to the list based partly on a poll of 700 U.S. adults about their recent online shopping habits. It showed that 60% are spending more online since the pandemic began. The best ideas list is also referred to as “Jefferies Franchise Picks.”
Amazon stock edged up 1%, closing at 3,415.25 on the stock market today.
“Amazon is a clear standout, with 77% of consumers continuing to spend more on the site since restrictions were lifted,” Thill wrote in a note to clients. Following Amazon was Walmart (WMT), with 26% of consumers spending more, then Target (TGT) at 15%, Chewy (CHWY) at 15%. EBay (EBAY) was at 10% and Etsy (ETSY) at 9%.
Thill noted that Amazon stock has lagged since mid-2020. It’s valuation is now at a discount of about 10% to its historical average.
Amazon Stock Gets A Boost From Prime
Thill said the adoption of Amazon Prime — the company’s customer rewards program — likely plays a key role in driving the increased spending. About 80% of new Prime members since the pandemic started expect to keep the service after the pandemic ends.
With the Amazon Prime program, members pay a monthly or annual fee. In return, they get free shipping, free access to Amazon Video and other perks.
Amazon says it now has about 200 million Prime customers. Prime customers purchase substantially more merchandise than non-Prime members.
Analysts attribute a multiyear rise in Amazon stock, in part, to Amazon Prime.
Cloud Computing Plays A Role
Another reason for adding Amazon stock to the best ideas list is its highly profitable and fast-growing Amazon Web Services unit, which specializes in cloud computing.
“For AWS, we believe work from home is shifting more workloads onto the cloud, which is benefiting AMZN as the de facto infrastructure provider,” Thill wrote.
Last week, a JPMorgan analyst said Amazon is on pace to pass Walmart as the largest U.S. retailer by next year in terms of the total value of goods sold.
In adding Amazon stock to the best ideas list, Jefferies removed Alphabet (GOOGL), the owner of Google.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
YOU MIGHT ALSO LIKE: