SunTrust's Bob Peck Boosts Amazon's Target To $850 Ahead Of Q3 Earnings

Bob Peck believes Amazon.com, Inc. AMZN would benefit from higher third party adoption, the “Prime flywheel” and secular growth at AWS.

Peck maintained a Neutral rating on the company, while raising the price target from $800 to $850.

However, the analyst also believes it could be difficult for Amazon to outperform its peers, given “1) a lot of positive assumptions baked into Street expectations, 2) rising competition, which could impact revenue growth and op margin expansion, 3) capital intensity is high, and 4) comps will remain tough in the near-term.”

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Guidance Reasonable

On the other hand, Peck also sees the top line guidance as reasonable for Q3 and expects the company to report a robust but in-line quarter.

Amazon guided to revenue of $31.00-$33.50 billion, implying 22-32 percent year-on-year growth, with the high end ahead of the consensus forecast.

The operating income guidance suggests CSOI of $800 million to $1.4 billion, with the high end in-line with the consensus.

Peck has raised the CSOI estimate, in line with the consensus, while pointing out that the company delivered robust growth in Q2 2015, despite tougher comps.

The July 2016 Prime Day was larger than that in 2015 and is likely to have contributed 300 bps in year-on-year growth.

Increasing Competition

However, the analyst also noted that competition was intensifying, especially from deep-pocketed players.

“Additionally, comps have become tougher for Amazon starting 2Q'16, which likely will persist through 1Q'17,” Peck added.

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