MKM On Amazon: The Best Growth Story Among Large Caps

MKM Partners has raised its estimates and target price on Amazon.com, Inc.

on continued sales and margin momentum in the second quarter. The online retail giant's EPS of $1.78 handily beat consensus estimate of $1.11 as it grew revenue by 31 percent to $30.4 billion, which also topped Street view of $29.54 billion. Gross profit margins expanded by 480 basis points. "We thought the bar was low for international revenue growth and for AWS margins, both of which beat, but domestic margin performance was also an upside surprise," analyst Rob Sanderson wrote in a note. Following strong results, Sanderson raised his 2016 EPS estimate to $5.46 from $5.26 and revenue view to $136.4 billion from $134.3 billion. The analyst also raised his growth forecast for AWS this year to 54 percent year from 49 percent as the business is outpacing his earlier forecast through the first half. "We consider AMZN the best, long duration growth story available to large cap investors today. While the stock is still relatively expensive on near-term metrics, margins are beginning to open up despite continued pace of investment," Sanderson continued. Sanderson, who has a Buy rating on Amazon shares, raised his 12-month price target to $995 from $850 as he believes that Amazon has significantly greater earnings potential in the out-years. "The shift to public cloud is still early, AMZN's share of total retail is still quite low, the company has dominant positions in both segments and there are other promising growth opportunities that could emerge into additional pillars for the company," Sanderson added.