Notable Analyst 'Hesitant on Price' Following Amazon Earnings

SunTrust's Bob Peck was impressed by Amazon.com, Inc.'s AMZN earnings report yesterday, but issued a caution today on its price. The stock is trading sharply higher in the premarket, which indicates it may open 13 percent higher to $440. Peck increased SunTrust's 2015 price target to $415, up from $370 prior.

From the earnings report, Peck highlighted Amazon's record gross margins of 32 percent, a 250 basis points expansion that was driven by third-party sellers. The breakout of Amazon Web Services highlighted its profitability, with AWS margins steady at 16.9 percent.

On the negative front, Peck noted that international margins declined 1 percent as Amazon continues to invest in new, large markets. Peck warned that, despite these investments, these markets "may take years to develop."

Futher, Peck said that the analysts "anticipate fierce competition will persist in the ecommerce and cloud markets driving increasing capital needs (logistics, content, storage/compute)." Against that backdrop, SunTrust maintained its Neutral rating and increased its price target by $45 to $415.

SunTrust said that the company has "elevated valuation vs. peers on a FCF basis," leading Peck to conclude that it is "too high" at more than 70x 2015 expectations and more than 40x 2016 expectations. Comparatively, Google Inc GOOG is at 19x and Facebook Inc FB is at 30x. SunTrust rates both Google and Facebook as Buy.