Upside ahead for Amazon, but a ‘rate trap’ looms for BofA

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Online marketplace giant Amazon focused on market calls overnight, with Jefferies analysts seeing a wide range of factors likely to contribute to a rise in the company’s stock price.

The news was not as good for Bank of America, with UBS concerned about a potential “rate trap” that could undermine one of the big four US banks.

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After welcoming industry experts and alumni Amazon employees, Jefferies believes the company has enough in reserve to give investors “something to be excited about.”

The company reiterated a buy rating on the e-commerce stock on Thursday and raised its price target to $225 per share from $190. Jefferies’ forecast calls for an increase of more than 23% from Wednesday’s close of $182.41.

“Global AWS (Amazon Web Services) and advertising opportunities are driving overall revenue growth with a corresponding margin increase for the overall business,” said analyst Brent Thill.

“Investments in AWS, content and execution support expansion into new products, services and geographies with significant potential,” he added.

Thill warned that Amazon will need to expand its artificial intelligence offerings to remain competitive in the sector as “multi-cloud adoption grows.”

Amazon shares are up more than 20% in 2024.

—Brian Evans

UBS thinks Bank of America is heading towards a “rate trap” which will limit the rise of the stock.

The company downgraded the bank stock to neutral from buy, but raised its price target slightly from $39 to $40 per share. UBS’s forecast implies an increase of almost 7% from Wednesday’s close of $37.44.

Analyst Erika Najarian defines the “rate trap” as a double-edged sword: lower central bank interest rates or a scenario of higher interest rates for longer. If the Federal Reserve does indeed decide to cut interest rates, then “asset-sensitive BAC will be subject to downward revisions to its EPS (earnings per share)” and will harm its market multiple.

If interest rates remain high for longer, Najarian says, then investors could become concerned about BofA’s held-to-maturity portfolio, which could also hurt the stock’s market multiple.

“After adjusting estimates upward to reflect 3 cuts in 24 and 4 in 25 (from 6 and 2 previously) and increasing our PT by $1 to $40, we see that BAC upside is limited over the next 12 months,” Najarian said. .

“To be clear, there is a lot of positive momentum within the company, driven by strong deposit growth, a reawakening of investment banking and markets activities and the prospect of accelerating buybacks, particularly in 2H24,” the analyst added.

Bank of America stock is up more than 11% in 2024.

—Brian Evans