Guggenheim Initiates Amazon With Buy Rating & $950 Target, Says AWS Is Key

Guggenheim commenced coverage with a Buy rating and $950 price target on Amazon.com, Inc. AMZN, citing Amazon Web Services as the key driver for the stock price.

The brokerage expects the online retailer to gain from multiple factors. The following factors are listed as favorable catalysts:

• AWS efficiency to boost profitability and dominance in cloud is expected to continue
• Customer loyalty on Amazon Prime is growing citing 50 percent uptick on a year-over-year basis
• Higher gross margin seen from thirty-party sales citing second quarter's 49 percent of paid unit compared to 41 percent in previous year
• International division delivered three straight quarters of profitability

Related Link: Guggenheim Initiates Coverage On 21 Retail Stocks

In a note, Guggenheim said, "We believe the Amazon Web Services (AWS) segment remains a key driver for the share price. The segment is benefitting meaningfully from the increasing IT acceptance of public cloud infrastructure and reacceleration of data spending in 2016. Given AWS's rapid pace of innovation (>1,100 new services in 2015/1H16), strong customer base, and ongoing efficiency gains, we expect cloud computing dominance and increased profitability to continue."

On the international division, the brokerage believes Prime flywheel has started to materialize in key markets. This included Japan, Germany, and the Great Britain. The division achieved 20 percent growth and the firm expects a return to profitability in the current year.