XAutoplay: On | OffCredit Suisse analyst Stephen Ju raised his price target on both Amazon and Alphabet to 1,350 from 1,100, and maintained an outperform rating on both.
Ju’s report on Amazon focused on the company’s acquisition of Whole Foods, saying the war that Amazon will wage in groceries will be won not on price but on service and delivery.
“While most of the headlines around the Whole Foods acquisition have been about price cuts, we believe the real path for Amazon to create lasting shareholder value is through fulfillment and delivery via Prime Now,” Ju wrote in a note to clients. Prime Now is Amazon’s service that provides delivery of groceries and household essentials, including toys and products for pets. It can also be used for restaurant delivery.
With its acquisition of Whole Foods, Amazon is positioned for a big expansion of Prime Now to numerous cities, wrote Ju.
Also on Wednesday, Amazon introduced a new Kindle tablet for reading books, called Oasis. Features on Oasis include being waterproof and a screen with the highest resolution Amazon has ever offered on the Kindle. It also has fast-charging capability.
IBD’S TAKE: Both Amazon and Alphabet are in a base, though Alphabet appears close to a breaking out into buy range. Shares of Alphabet are trading close to a buy point of 1008.10 and back above their 50-day moving average, having climbed back above that key metric Sept. 27.
Regarding Alphabet, Ju said the case for owning Alphabet shares remains rooted in the company’s product release cycle. This includes improvements in monetizing its search business, larger than expected revenue from YouTube and Google Play, as well as the long-term monetization of Google Maps and other bets.
Alphabet shares were up 1.4%, near 1,001.50 during afternoon trading in the stock market today. Amazon shares were up 0.3%, near 989.90.
Amazon shares are up 33% this year, while Alphabet shares are up 26%. Alphabet is set to report third-quarter earnings after the market close on Oct. 26.
A report from Morgan Stanley last month said Amazon has multiple opportunities with its Whole Foods acquisition to boost grocery sales and grow its Prime membership program.
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