Goldman Sachs Upgrades Amazon (AMZN) to Conviction Buy

June 11, 2014 7:08 AM EDT
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Price: $3,416.00 +1.06%

Rating Summary:
    55 Buy, 3 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 16 | Down: 13 | New: 52
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Goldman Sachs upgraded (NASDAQ: AMZN) from Buy to Conviction Buy with a price target of $400.00 (from $430.00). Analyst Heath P. Terry thinks high capital returns outweigh margins worries.

"We are adding Amazon to the Conviction List as we believe it represents one of the best risk/reward propositions in the sector following the recent sector rotation. While concerns over Amazon Web Services (AWS) pricing, slowing Media growth, and ongoing margin pressures are likely to persist, we believe – given its track record of delivering consistently high returns on invested capital – the ongoing investment in fulfillment and infrastructure will widen Amazon’s competitive lead through initiatives such as Fresh, AWS, digital media, and faster fulfillment and product availability, driving incremental growth and, ultimately, profitability," said Terry.

"While capex at Amazon has risen ~10X over the past five years compared to revenue growth of ~4X over the same period, its cash returns on invested capital, 39% in 2013, have consistently been among the highest in Internet and well above that of other sectors (Exhibit 1). We believe that context is critical when factoring in the operating margin compression driven by this investment," added the analyst. "We see Amazon’s investment in AWS, Fresh (and the fulfillment infrastructure that comes with it), and hardware (with the digital media ecosystem it enables) as driving incremental growth and furthering Amazon’s high returns, given the margin profile of those businesses at scale. Meanwhile, the acceleration in the EGM business is, we believe, more indicative of the direction of the core retail business."

For an analyst ratings summary and ratings history on click here. For more ratings news on click here.

Shares of closed at $332.41 yesterday.

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