Even after a sustained period of share losses, Amazon (AMZN) stock is still pricey, with one share going for $2,936.35. That, however, is about to come an end.
On Wednesday, the tech giant announced it would enact a 20-for-1 stock split, which will go into effect on June 6, should the move be given the go ahead by shareholders in May.
If that wasn’t enough to satisfy investors, the company also said it rebought $800 million of shares under its old repurchase authorization and has given the green light for a $10 billion repurchase plan.
These are rare actions for Amazon. The last stock split took place in 1999, while prior to the $1.3 billion purchase made in January, it had been 10 years – 1Q2012, in fact - since the company forked out on common stock.
If past purchases are anything to go by, then investors could be in for a good time over the next couple of years. “Historically AMZN's repurchases have been positive signals about the equity value,” says Morgan Stanley’s Brian Nowak, “as they would have earned an average return of 42% over a 6 month return period.” Likewise, assuming an investor bought and held the stock, over a 12-and 24-month period, Amazon's share repurchases would have generated returns of 100% and 135%, respectively.
While the moves are “more symbolic than material,” all these actions indicate to Nowak that the company is becoming “increasingly shareholder friendly,” and this in turn can help “catalyze potential multiple expansion.” Evidently, investors liked the announcement, sending shares ~5% higher in Thursday's trading session.
Amazon joins other tech luminaires with its latest shareholder pleasing moves, a development Nowak applauds. “As bigtech (GOOGL/FB/AAPL/MSFT) becomes more shareholder friendly (buybacks, disclosure, etc) we are happy to see AMZN participate, allowing it to better compete for investor capital,” the analyst summed up.
Accordingly, Nowak reiterated an Overweight (i.e., Buy) rating on Amazon shares along with a $4,200 price target. The implication for investors? Upside of 43%. (To watch Nowak’s track record, click here)
There are no Wall Street analysts betting against Amazon’s continued success; all 34 reviews on record are positive, making the consensus rating a Strong Buy. The average price target of $4,218 and change is practically the same as Nowak’s. (See Amazon stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.