Offshore

⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $AMZN 🧘🏽‍♂️

•NTM P/OCF Ratio: 18.70x
•15-Year Mean: 24.41x

•NTM FCF Yield: 2.95%
•10-Year Mean: 2.84%

As you can see, $AMZN appears to be slightly undervalued

Going forward, investors can expect to receive ~30% MORE in operating cash flow & ~4% MORE in FCF per share🧠***

Before we get into valuation, let’s take a look at why $AMZN is a quality business

BALANCE SHEET✅
•Cash & Equivalents: $85.07B
•Long-Term Debt: $64.13B

$AMZN has an excellent balance sheet, an AA S&P Credit Rating & 33x FFO Interest Coverage Ratio

RETURN ON CAPITAL🆗 / ✅
•2019: 10.4%
•2020: 11.6%
•2021: 8.9%
•2022: 4.2%
•2023: 10.1%
•LTM: 12.6%

RETURN ON EQUITY✅
•2019: 21.9%
•2020: 27.4%
•2021: 28.8%
•2022: (1.9%)
•2023: 17.5%
•LTM: 20.3%

$AMZN has solid return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2018: $232.89B
•2023: $574.79B
•CAGR: 19.80%

FREE CASH FLOW✅
•2018: $17.30B
•2023: $32.22B
•CAGR: 13.24%

NORMALIZED EPS✅
•2018: $1.01
•2023: $2.90
•CAGR: 23.48%

SHARE BUYBACKS❌
•2018 Shares Outstanding: 10.00B
•LTM Shares Outstanding: 10.57B

MARGINS🆗➡️✅
•LTM Gross Margins: 47.6%
•LTM Operating Margins: 8.0%
•LTM Net Income Margins: 6.4%

*Important for $AMZN to continue expanding margins & increase profitability

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~30% MORE in OCF & ~4% MORE in FCF per share

We're using P/OCF instead of P/E because Amazon's (AMZN) share price has historically shown a stronger correlation with Operating Cash Flow (OCF), as evident in the first attached graph

Today, analysts anticipate aggressive OCF (per share) growth between 2024 - 2026:

2024E: $11.37 (40% YoY)
2025E: $13.61 (20% YoY)
2026E: $16.21 (19% YoY)

$AMZN has a decent track record of meeting analyst estimates ~2 years out, so let’s assume $AMZN ends 2026 with $16.21 in OCF per share & see its CAGR potential assuming different multiples (photos attached below also include these CAGR estimates):

18.51x P/E: $299.97💵 … ~21.59% CAGR

17.00x P/E: $262.48💵 … ~17.40% CAGR

16.19x P/E: $275.55💵 … ~15.06% CAGR

As you can see, $AMZN appears to have aggressive double-digit CAGR potential if we assume ~16x P/OCF, a multiple well-below what it’s trading for today, a multiple it hasn’t treaded for since 2010, and a multiple below what may be justified given its growth rate

I also believe that the market is under-appreciating $AMZN FCF growth potential:

2024E: $61.31B (66.6% YoY)
2025E: $76.44B (24.7% YoY)
2026E: $101.22B (32.4% YoY)
2027E: $119.59B (18.1% YoY)

AWS & Amazon Ads will continue to drive growth & profitability. In $AMZN Q1 2024 report:

☁️AWS revenue: $25.03B
📈Ads revenue: $11.82B

Combined, these segments generated $36.85B net revenue (annualized = $147.4B … with ~37% Operating Income Margin)

Today at $187💵 $AMZN appears to be a good consideration for investment

#stocks #investing

Data: TIKR
Graphs: FAST Graphs
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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