Amazon's Stock Rallies Toward Record High But SunTrust Analyst Concerned About Costs, Margins

By Tomi Kilgore Markets MarketWatch Pulse

Amazon.com Inc.'s stock ran up 1.4% in midday trade Tuesday toward a second-straight record close, but SunTrust Robinson Humphrey worries that it might run into relative trouble given the expected jump in costs. Amazon announced Monday that it planned to add 15,000 new full-time jobs in Europe through the end of 2017, with many of the new roles in fulfillment centers under construction in France, Germany, Italy, Poland, Spain and the U.K. "We continue to invest heavily across Europe in fulfillment, customer service, cloud technology, research and development, machine learning, advanced logistics and much more," said Xavier Garambois, vice president of Amazon EU Retail in a statement. Madhukar said the e-commerce giant looks top be actively trying to replicate its U.S. playbook in Europe. He reiterated his hold rating on the stock, saying while he likes the company's growth, he's mindful of the costs of that growth. For example, Amazon's first-quarter guidance suggests margins could compress for the first time since 2014. "As such, we think Amazon likely will continue to grow at an elevated pace, but cash flows could remain depressed give its investment philosophy and intent on actively expanding [total available market]," Madhukar wrote in a note to clients. Consequently, while we believe in the long-term opportunity, we think it may be tough for Amazon to outperform peers in the near term." The stock has soared 60% over the past 12 months, while the S&P 500 has gained 23%.

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