Margins, Profit Drive Stock's Recent Outperformance
Analyst Mark May sees the significant outperformance of Amazon's stock over the last 20 months as driven by a meaningful expansion in profitability and margins. The stock move, according to the analyst, has helped to appease skeptics and led them into believing in the long-term profit potential of the company and its valuation.
Margin Expansion Losing Steam?
However, Citi believes margin expansion will moderate starting in the third quarter, as the company increases investments in areas like U.S. retail logistics, video & music content and India retail operations. In U.S. retail logistics, the company has made square feet additions, while on video/music content, it is seeking to double investment and triple originals in the second half of 2016. On India retail, the company has committed an additional $3 billion investment in June on top of the $2 billion earmarked two years back, Citi noted.
Lowering Estimates, Upping Price Target
Citi lowered its 2016 and 2017 earnings per share estimate for the company. As such, Citi maintains its Buy rating on the shares of Amazon, but raised its price target to $975 from $870.
In pre-market trading, shares of Amazon were down 0.23 percent at $833.24, and at last check, the stock was down 1.27 percent at $824.60.
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