Credit Suisse: Amazon to rally 40% in next year as it uses Whole Foods to make 2-hour deliveries – CNBC

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Amazon Fresh trucks

The most important strategic move for Amazon after its Whole Foods acquisition is not just cutting grocery prices, according to one top Wall Street firm.

Credit Suisse reaffirmed its outperform rating and raised its price target for the e-commerce giant to the second highest on Wall Street citing Amazon’s ability to leverage its Whole Foods purchase to offer faster same-day delivery service in more areas.

“The product development perspective is that while most of the headlines around the Whole Foods acquisition have been about price cuts, we believe the real path for Amazon to create lasting shareholder value is through fulfillment and delivery via Prime Now,” analyst Stephen Ju wrote in a note to clients Wednesday.

“Hence, while price cuts capture the headlines, we submit that Amazon will wage war with its competitors with service instead.”

Amazon closed its acquisition of Whole Foods Market in August. Prime Now is the company’s free 2-hour delivery service for its Amazon Prime subscribers.

Ju raised his price target for Amazon shares to $1350 from $1,100, representing 37 percent upside from Tuesday’s close. He now has the second highest price target on the stock out of 42 analysts, according to FactSet. Wells Fargo has the most bullish target with a $1400 forecast.

The analyst cited how Amazon’s Prime Now delivery service is now only available in the zip codes of 198 Whole Foods stores out of 393 total stores, offering a big potential opportunity to build out the service to new areas.

“And as the consumer value proposition for Amazon has always been the combination of price, selection, and delivery we believe the current headlines about price reductions at Whole Foods will be accompanied by expansion of Prime Now delivery-enabled zip codes,” he wrote.

Amazon shares have rallied 32 percent this year through Tuesday, compared with the market’s 14 percent gain.

Its shares are roughly flat in the Wednesday premarket session after the report.

— CNBC’s Michael Bloom contributed to this story.

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