Gene Munster Explains The Logic Behind Amazon's $420 Price Target

Piper Jaffray’s analyst Gene Munster, who famously proclaimed Amazon.com, Inc. AMZN as the best stock of 2015 was on CNBC recently to discuss Amazon’s outstanding fourth-quarter results. He also explained the logic behind his $420 price target on Amazon Stock.

“There was a sea change last night in terms of how the company is massaging its margin profile,” Munster said. “That’s been a critical issue for investors, getting their heads around how profitability is going to play out and specifically the CFO mentioned that they have been in heavy investment cycle, been as in past tense and they have more of a focus on productivity and productivity is basically code for margins and so since that’s the first time they have talked about, what that does is give us some optimism that this isn’t going to be some roller coaster margins like we have had with Amazon for the past few years.

“The bottom line is this, is Amazon is more focussed on profits, they have robots working on their behalf and I think that that is going to benefit the stock going forward.”

How Does Amazon’s Margin Change Affect The Valuation Of Stock?

“It gives us more confidence to use an EBITDA multiple in value,” Munster said.  “So, our price target is $420 and what we use is a 17 multiple on a 2016 EBITDA realize that’s a lot of numbers, but the bottom-line is given the greater focus on productivity it gives us more comfort in using some EBITDA multiple. Some investors will say we are too early that this is just a head fake, we don’t it is, but that’s how we go to $420.”