Amazon gets downgraded on Wall Street for the first time in more than a year

Key Points
  • Raymond James believes Amazon needs to show better profitability to justify further gains.
  • Firm downgrades shares to market perform form outperform.
  • Amazon's stock is up 21 percent this year and 45 percent in the past 12 months.
Jeff Bezos, Amazon
Brent Lewis | The Denver Post | Getty Images

Raymond James just went where few Wall Street firms dare to go.

It lowered its rating on Amazon to market perform from outperform, saying the company needs to show better profitability to justify further gains.

Wall Street downgrades are a rarity for a beloved stock like Amazon. In fact, it hasn't received a downgrade from a major sell-side firm in over a year, according to Street Account. Just six of 40 analysts have hold ratings on the internet retailer, while 34 rate it buy or overweight, according to FactSet. No analysts have a sell rating.

"We believe shares are fairly valued and near our previous price target. … At current levels, we believe Amazon will need to begin to show greater operating [profit margin] leverage for shares to move meaningfully higher and reach our bull case," analyst Aaron Kessler wrote in a note to clients Tuesday. "Specifically, we would like to see improved margins/less losses for International, shipping costs, Prime Video."

The analyst retracted his previous $925 price target for Amazon, which represented 2 percent upside from Monday's close. He did not provide a new target.

Amazon is one of the market's best performing stocks, with its shares up 21 percent this year through Monday compared with the S&P 500's 6 percent return. The stock is also up 45 percent in the past 12 months.

"Amazon continues to invest aggressively across a number of key areas, including fulfillment centers, digital content costs (e.g., recent NFL deal), Prime services, Alexa/Echo, and India," Kessler wrote. "While we expect 2H operating margin improvement, this is largely anticipated by consensus estimates and we believe shares reflect the improved back half outlook."

On the flip side to Raymond James' move, Goldman Sachs reiterated its buy rating for Amazon and raised its price target to $1,100 from $1,000 Monday.

Smaller shop Monness, Crespi, Hardt & Co. downgraded Amazon to neutral from buy in January 2016, according to StreetAccount. All of the major banks have buy ratings on Amazon. SunTrust Robinson Humphrey downgraded the stock to neutral in March 2015.

The internet giant will report first-quarter earnings on Thursday.

— CNBC's Michael Bloom contributed to this story.