On July 12, 2017, RBC Capital held a symposium to assess the short and long-term impact Amazon.com, Inc. (NASDAQ:AMZN) will have on the wider food and restaurant industry in the aftermath of the company’s acquisition of Whole Foods. With restaurant visits among millennial consumers down by over 200 million compared to a decade ago and digitally placed orders more than tripling in the last five years, the Whole Foods-Amazon deal can potentially accelerate drastic change to the industry.
Top analyst Mark Mahaney of RBC Capital asks: why Amazon is buying Whole Foods in the first place? The analyst notes that “Amazon has posted impressive 20%+ growth for 28 of the last 29 quarters… and the gap between Amazon and the number two players (EBAY, WMT) continues to increase.” Keeping in mind that the Total Available Market for the U.S. grocery stands at $800 billion, Mahaney went on to write that Amazon can “use its competitive advantages (distribution, logistics) to influence key customer focal points (i.e. Price and Convenience).” Mahaney also points out that there is “significant opportunity for Amazon to leverage its massive data advantage to enhance the consumer experience.” Secondly, the analyst mentions that the company is “relentlessly pursuing its 4th, 5th, 6th, 7th… pillars and we see a number of likely candidates, with Business Supplies, Groceries, Online Advertising, Shipping & Logistics & VAI as the most promising.”
Mahaney rates Amazon Outperform with a $1,100 price target representing a nearly 9% upside from current levels. (To watch Mahaney’s track record, click here.)
Additionally, David Palmer, a fellow analyst at RBC Capital noted that Whole Foods is worth $3 billion while ranking in the top 25 US restaurant chains. The analyst opined that the company is “laser focused on the most profitable parts of the supermarket and will better serve America’s growing desire for fresh unprocessed foods.” As millennials and younger Gen Xers yearn for both healthier and convenient food options, Amazon has a tremendous opportunity to widen the current 4% retail penetration. In fact, 62% of online food/beverages buyers have turned to Amazon over the last 3 months. Considering that Amazon has already successfully reshaped the public’s shopping habits, there is no reason to believe the company cannot take on eating habits next.
TipRanks analytics indicate AMZN as a Strong Buy. Out of 28 analysts polled by TipRanks in the last 3 months, 25 are bullish, while 3 are neutral on Amazon stock. The consensus target price stands at $1,130.39, revealing a close to 11% upside from current levels.