Warren Buffett might be tempted to buy more Amazon stock as it has 3 levers to unlock value, Evercore says

• Amazon stock has dropped 49% year-to-date but it has three levers to unlock value that make it a "Buffett buy," according to Evercore ISI.
• Warren Buffett's Berkshire Hathaway already owns a $1.2 billion stake in Amazon that was bought in 2019.
• "We continue to view Amazon as highly attractive for long-term investors as a dislocated high quality stock," Evercore said.

Amazon is stock a Warren Buffett could buy again because it has three clear levers to unlock value heading into 2023, Evercore ISI said in a Sunday note.

The e-commerce giant has seen its stock fall 49% year-to-date amid a period of higher interest rates and concerns of an imminent recession. But it's still "the most broadly and successfully diversified 'Net company in terms of its market opportunities," Evercore's Mark Mahaney wrote.

Those trillion-dollar opportunities, which include retail, the cloud, and advertising, are what likely led Buffett's Berkshire Hathaway to initiate a position in Amazon stock in the first quarter of 2019. That stake was worth $1.2 billion at the end of the third-quarter, according to 13F filings.

"Amazon remains arguably the highest quality asset we cover in terms of revenue and profit outlooks," Mahaney said, adding that its accelerated fulfilment and delivery networks "are only likely to have deepened moats around its retail segment." Still, a potential recession has Evercore cutting its estimates of Amazon.

Evercore lowered its Amazon price target to $150 from $170 due to proprietary datapoints indicating softness in online retail and cloud computing demand, but that still represents potential upside of 76% from current levels.

"We continue to view Amazon as highly attractive for long-term investors as a dislocated high quality stock and see several value unlocks that we highlight in this report," Mahaney said.

These are the three value unlocks that make Amazon a "Buffett buy," according to Evercore ISI.

1. Amazon's retail profits are weighed down by its ambitious projects.

"Disclosure into its true retail profit margins, which we believe are freighted down by material 'Other Bets' investments in areas like AV, robotics, Alexa, and video entertainment," Mahaney said.

2. Amazon could include advertisements in its Amazon Prime Video offering.

"The relatively easy opportunity to better monetize Amazon Prime Video with even a modest ad load – Amazon Prime Video is now essentially the only major streaming asset without ad monetization."

3. Amazon could buyback shares with its $80 billion cash pile.

"More aggressive capital allocation, especially share repurchases given the material Amazon share price dislocation and the company's nearly $80 billion in cash, equivalents and marketable securities."