Analysts Raise Amazon Price Targets as Margins Surprise

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Amazon.com's better-than-expected profit margins surprised Wall Street, prompting at least five brokerages to raise their price targets on the world's largest Internet retailer's stock on Wednesday.

Shares of the Kindle maker are poised to open up 9 percent on the Nasdaq, after closing at $260.35 (165.24 pounds) on Tuesday. The stock had hit a record high of $284.72 on Jan. 25.

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"We can't help but stop and wonder whether the Amazon bull case has now pivoted from one of revenue growth to one of margin expansion," Barclays Capital analysts said in a note and raised their target price on the stock to $260 from $245.

The analysts said they would now concentrate on Amazon's ability to manage costs in order to drive margin expansion and operating income growth.

Amazon on Tuesday reported fourth-quarter gross profit margins of 24 percent, higher than Wall Street expectations of about 22 percent.

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J.P.Morgan Securities raised its target price on Amazon shares to $333 from $245 and said the company's fourth-quarter results suggest the retailer can continue to expand gross margins.

"We believe Amazon continues to show strong ability to take share of both overall retail and eCommerce," J.P. Morgan analyst Doug Anmuth said in a note.

A shift to a combination of third party and Amazon Web Services — a cloud computing offering — along with higher shipping efficiency is helping drive gross margin expansion, Robert W. Baird & Co said in a note.

Baird raised its price target on the internet retailer's shares to $325 from $300.

BofA Merrill Lynch, which nudged its target on Amazon shares to $315 from $300, said growth metrics at Amazon may have disappointed, but investor sentiment will be supported by a third-party shift, ongoing gross margin upside and solid U.S. margins.