(Reuters) - Amazon.com Inc’s (AMZN.O) low cost model and steady growth rate will ensure that the online retail giant will do very well even if there is a mild recession in the United States, analysts at Stifel Nicolaus said, upgrading the company to “buy.”
The largest Internet retailer has seen sales jump steadily over the years on demand for its Kindle electronic reader and other electronics. It recently launched its much anticipated tablet for $199, hoping to compete with industry leader Apple Inc’s (AAPL.O) iPad.
“We are more comfortable that Amazon can continue to grow more than 30 percent organically for the next two years, even in a low or no-growth environment,” Stifel analysts wrote in a note to clients.
The analysts also said Amazon’s cloud computing and eBooks business should add slightly-higher margin growth over the next few years.
“The Kindle Fire, while dilutive on a per unit basis, could help Amazon catch up to existing distributors of digital media, and may reinforce the advantage Amazon enjoys with Amazon Prime,” they wrote.
The new tablet takes $209.63 to make, according to IHS iSuppli estimates, suggesting that the e-commerce company is taking a financial hit upfront to get the device into as many hands as possible.
Stifel has a price target of $280 on the company’s stock. Amazon shares closed at $216.23 on Friday on Nasdaq.
“While valuation remains high on current fundamentals, the sustainability of Amazon’s growth justifies this premium,” they said. The stock currently trades at 110 times forward multiples, according to Reuters data.
Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Supriya Kurane