Amazon Stock Could Climb More Than 35%, Wedbush Says

We think investor sentiment for Amazon is mixed heading into third-quarter results as investors continue to debate

1) the trajectory of Amazon Web Services’ growth and the company’s overall AI strategy,

2) regulatory challenges and the outcome of the Federal Trade Commission lawsuit filed last month,

3) potential retail margin pressure due to rising oil prices, and

4) ongoing competition from Chinese entrants (Temu, Shein, TikTok Shop).

We think the company is broadly better positioned than investors fear, and we see catalysts ahead as retail margins continue to rise and AWS growth accelerates against easing comps. With margins rising, we analyzed 10 years of historical data and identified all periods when Amazon’s operating margin either increased or decreased on a year-over-year basis for two or more consecutive quarters.

We then compared share price returns during those periods, and found that on average, Amazon shares have appreciated 84% when operating margins are rising versus just 1% when operating margins are declining. Price target: $180.

Bank of New York Mellon
• BK-NYSE

Sector Perform • Price $43.44 on Oct. 17

By RBC Capital Markets

Bank of New York Mellon, as the plumber to much of the financial system, has benefited from the rise in federal funds, as it has posted double-digit net interest income growth over the past 18 months. In third-quarter 2023, however, NII growth stalled out as average earning assets declined and its net interest margin contracted.

To counter these trends, which should bottom over the next six months, management is very focused on reducing expense growth and creating positive operating leverage. Further, Bank of New York is well capitalized and plans to be judicious in returning 100% of its earnings in dividends and stock buybacks in 2023. Price target: $50.

Tyler Technologies
• TYL-NYSE

Outperform • Price $375.16 on Oct. 16

by Oppenheimer

We are initiating coverage of Tyler Technologies [a provider of software and services to state and local governments] with an Outperform rating and $450 price target. We believe that Tyler represents a unique combination of revenue resiliency, new growth opportunities, and margin expansion.

As the GovTech market leader, Tyler is best positioned to capitalize on a sizable digital transformation opportunity across all departments and levels of government. The onset of the Covid-19 pandemic brought the realization that systems would need to be replaced sooner than originally anticipated.

Constituents have come to expect government services delivered through consumer-like user experiences, which typically require modern software architectures and functionality delivered through mobile devices. Management projects revenue to exceed $2.3 billion to 2.4 billion in fiscal 2025 and $3.6 billion to 3.8 billion by fiscal 2030, with free-cash-flow margins trending up from 10% today to 17% to 19% in fiscal 2025 and 30%-plus in fiscal 2030. The push to the cloud is projected to boost customer spend by two times, while also improving margins by streamlining the product portfolio.

Pfizer
• PFE-NYSE

Neutral • Price $32.11 on Oct. 16

by UBS

Pfizer finally threw in the towel on the potential for reinvigorated demand for Comirnaty [the Pfizer/BioNTech Covid-19 vaccine] and Paxlovid [a Covid treatment], with a major cut to guidance and announcement of a cost-cutting program. Pfizer stated it believes we are at the peak of antivaccination rhetoric, suggesting we may be at the trough of utilization.

We disagree with this and see potential further downside from here—Covid data continue to point to a general trend of decline, e.g., testing rates are down 90% year over year. Even assuming we are seeing the trough for Covid, Pfizer’s lack of meaningful pipeline drivers and exposure to loss of exclusivity ($16 billion to $18 billion in revenue exposed to LOE in 2025 to 2030) is another reason we are at Neutral. Price target: $36.

J.B. Hunt Transport Services
• JBHT-Nasdaq

Outperform Price $188.70 on Oct. 17

by Raymond James

While concerns over the trajectory of the freight markets remain, with customers working through excess inventories and weak imports, we maintain our Outperform rating. That is due to our view of management’s ability to manage the environment and the prospects for outsize volume growth in out-years driven by J.B.Hunt’s renewed commitment with its primary rail partner, a multiyear expansion in capacity, and improving box turns. We remain steadfast in our belief that intermodal’s value proposition could rise on improved service and the environment, social, and governance, or ESG, benefits that intermodal offers.

Further, J.B. Hunt continues to garner a sticky growth engine in its Dedicated [Contract Services] business with conversion upside. With shares at 22 times our estimated 2024 earnings per share, these opportunities do not seem fully appreciated, as accelerating load growth could drive a positive rerating. Price target: $200.

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