Citi's Mark May Explains His Upgrade Of Amazon

Citi’s Internet analyst Mark May upgraded Amazon.com, Inc. AMZN on Tuesday to Buy from Neutral and also upped his price target on the stock to $354. In a note titled ‘The Sun Will Come Out Tomorrow’ that May sent to investors, he argued Amazon’s stable margin, attractive valuation and top-line growth for the upgrade.

In a conversation with CNBC, May explained why he thinks Amazon is on the right track and also broke down his upgrade on the stock.

"At $300 the company is trading in line with traditional retail peers like Wal-Mart, Target and Costco, despite the fact that Amazon is growing about four times faster than those companies and despite the fact that Amazon has proven to be able to generate comparable if not [the entire] margins these companies can [pass]," May said.

"So, that's really where we think there is valuation support and now is a good time to be looking Amazon, especially as the online e-commerce category continues to gain share even at accelerating pace versus offline retail."

"SWe had a good downgrade of Amazon back in July of last year when the stock was around $360," May continued. "At the time what was not known and not priced in was the heavy investment cycle that the company was going through; investing heavily in the cloud services AWS business, investing heavily in new hardware devices etcetera. When we look out into this year, we don't see the investment cycle being greater than what we saw in '14. We think, you'll see stable and more likely increasing margins as we go forward."