Since reporting earnings in January, Amazon.com, Inc. AMZN is up sharply, adding more than 20 percent to its market capitalization. That share price gain is one reason that SunTrust's Bob Peck is downgrading the stock to Neutral from Buy. The analyst reiterated a $370 target on the stock, roughly $10 below Friday's closing price.
Notably, Peck said that the company's free cash flow multiple is "misunderstood and more expensive than some investors realize." Amazon will continue to invest its free cash against long-term opportunities, the note said, putting current valuation at 70x forward adjusted free cash flows. Instead, SunTrust believes this valuation should be closer to 30x, growing at 40 percent.
Though downgrading, SunTrust said that it believes Amazon will be able to capitalize on Amazon Web Services and Amazon Prime, among other drivers. Those positives, however, are currently reflected in the price.
Shares of Amazon traded down 0.6 percent in the premarket.
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