Shares of Amazon (AMZN - Free Report) popped Tuesday after D.A. Davidson analysts suggested that the next logical industries for the e-commerce giant to enter would be gas stations and travel. Amazon could likely jump into the gas station market without much fuss, similar to Costco (COST - Free Report) , and certainly has the online infrastructure and customer base to offer travel deals. But what should investors make of this?
Gas Stations & Travel
Amazon currently operates in eight out of the 10 industries that represent market opportunities which exceed $1 trillion globally, according to D.A. Davidson analysts. The company currently has footings in apparel, pharmacy, B2B e-commerce, professional services, consumer Internet of Things, restaurants, stores, and grocery. The only two Amazon has not entered yet are gas stations and travel. "Based on our estimates, Amazon is currently pursuing 8 of 10 market opportunities that exceed $1T, globally,” analyst Tom Forte wrote in a note to clients Tuesday.
“We see an opportunity for it to exploit the remaining two – gas (stations) and travel… The company has a history of solving complex logistical problems. Financially, it seeks opportunities that can generate significant free cash flow."
The D.A. Davidson analyst went on to point out that Amazon rival Costco generates more than 10% of its sales from its gas stations. Forte noted that Amazon could offer Prime members discounts and add more brick-and-mortar locations to its growing physical stores business, which includes Whole Foods and bookstores.
The analyst went on to suggest that Amazon could provide its Prime subscribers with travel deals on vacation packages, hotels, cruises, and rental cars. “Amazon could sell consumers not only the airline tickets and hotel accommodations but also everything they need for their trip,” Forte continued.
Investors should note that wholesale power Costco currently offers customers an array of travel discounts through Costco Travel. D.A. Davidson reiterated its “buy” rating for AMZN stock and reaffirmed its $2,200, 12-month to 18-month price target. This marked a roughly 19% upside from Monday's closing price of $1,847.75 per share.
More Reasons to Buy?
Amazon is still an online retail firm at its core, selling and delivering packages—even though it reported physical store sales of $4.31 billion in Q2. Amazon has prompted companies from Walmart (WMT - Free Report) to Target (TGT - Free Report) to quickly adapt their business models. Now the likes of CVS (CVS - Free Report) and Walgreens Boots Alliance stock WBA have to invest more heavily in online sales and delivery following Amazon’s PillPack purchase.
Meanwhile, Amazon offers dozens of TV shows and movies, from big-budget action series to indie-style dramas featuring A-list Hollywood stars that help it compete against Netflix (NFLX - Free Report) , Hulu, and soon enough Disney (DIS - Free Report) and Apple (AAPL - Free Report) . Plus, the company reportedly grabbed 34% of the total cloud computing market during the second quarter, according to Synergy Research Group—topping Microsoft’s (MSFT - Free Report) 14%, IBM’s (IBM - Free Report) 8%, Google’s (GOOGL - Free Report) 6%, and Alibaba’s (BABA - Free Report) 4%.
AMZN’s Q3 revenues are projected to climb by over 30% to hit $56.91 billion, based on our current Zacks Consensus Estimate. The company’s full-year sales are expected to reach $234.82 billion, which would represent a roughly 32% climb.
At the other end of the income statement, Amazon’s third-quarter EPS figure is projected to jump from $0.52 in the year-ago period to $3.21 per share. The firm’s fiscal 2018 earnings are expected to skyrocket over 279%. And Amazon has earned 18 earnings estimate revisions with 100% agreement to the upside during the last 30 days, for both its current year and fiscal 2019.
Investors know Amazon plans to continue to expand, and these two areas—gas stations and travel—seem like all too natural of moves. Amazon is also currently a Zack Rank #1(Strong Buy), based on its strong earnings revisions trends, and sports an “A” grade for Growth in our Style Scores system.
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