Amazon's (AMZN) Price Target Raised to $820 at KeyBanc/Pacific Crest

KeyBanc/Pacific Crest maintained an Overweight rating on Amazon.com (NASDAQ: AMZN) and raised its price target to $820. Analysts Edward Yruma and Brent Bracelin think 'Air Amazon' can drive a meaningful cost advantage and they said shift holiday surge FBA pricing should help maintain high service levels and fulfillment costs.

"We were able to identify seven current airframes being used (out of the eventual 40) and mapped the existing route network. Based on our assumptions on current Amazon shipping rates from FC to consumer on a traditional carrier, we estimate Amazon can save an average of $5.82 per shipment. On an annualized basis, and assuming 40 planes, this could drive ~$440 million in savings," said the bank.

Analysts continued, "Amazon continues to innovate in last-mile delivery. We believe the move to use USPS injection in 2013 lowered the cost of two-day shipments. Amazon’s move to add air capability between fulfillment and sort centers and additional use of alternative last-mile providers can help alleviate pressure on shipping costs. We are lowering our fulfillment costs/revenue estimates by 3 basis points in 2016 and 22 basis points in 2017, which underpins our $0.05 and $0.43 EPS estimate increases. We model $19.1 billion in 2017 fulfillment costs (ex-SBC)."

"Changes in FBA should help package velocity during peak period. Amazon recently changed the cost structure for FBA during the peak holiday season, increasing the cost to warehouse an item, but reducing the weight handling fee. For high-velocity items, Amazon believes this will be a net neutral to FBA customers, but it should discourage excessive warehousing of low-velocity items. Recall that in 4Q15, fulfillment as a percentage of revenue deleveraged 99 basis points, in part due to inefficiencies resulting from heavy inventory levels. We think these changes will help alleviate these issues," said KeyBanc/Pacific Crest.

For an analyst ratings summary and ratings history on Amazon.com click here. For more ratings news on Amazon.com click here.

Shares of Amazon.com closed at $714.26 yesterday.

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