SunTrust Raises Amazon's Target To $775, But Remains Neutral On Shares

Bob Peck of SunTrust Robinson Humphrey believes it will be difficult for Amazon.com, Inc. AMZN shares to outperform peers, going forward. He maintained a Neutral rating on the company, while raising the price target from $710 to $775.

“Competition is increasing, which could impact revenue growth and margin expansion, capital intensity is high, and comps will get tougher for the remainder of 2016. Consequently, we think it may be tough for the shares to outperform peers,” the analyst explained.

In-Line Quarter Likely

Peck expects Amazon to report an in line quarter, with the revenue guidance of $28-$30 billion implying year-on-year growth of 23-34 percent, as compared to the 28 percent and 22 percent growth seen in the previous two quarters.

“Top-line estimates appear reasonable, given the Prime flywheel is working, 3P is growing faster than 1P, and AWS adoption continues unabated,” the analyst mentioned.

Amazon had guided to CSOI of $1.2-$1.8 billion, implying year-on-year margin expansion of 80 bps, which Peck believes is achievable.

Comps & Competition Tougher

On the other hand, Peck expects comps to get tougher starting Q2 and the 2014 Prime Day to present a tough comp for 3Q16.

In addition, competition from traditional retailers and ecommerce 2.0 players has been intensifying, with AWS facing increased competition from “deep-pocketed players” that have global scale, entrenched relationships and long-term vision and strategy.