Amazon.com Inc. (AMZN) may be spending a ton of money to position itself for future growth, but that isn’t worrying MKM Partners, which urged investors to buy the stock in a research report this week.

With shares surging after the company closed on its purchase of Whole Foods Market, MKM Partners thinks there’s room for Amazon’s stock to climb higher. The firm has a $1,275 price target and buy rating on the online retailer. Even with shares up 1.1% or $10.78 to $978.38 a share Thursday, MKM thinks it can gain an additional 30%.

Robert Sanderson, an analyst at MKM Partners wrote in a research report covered by the media that the Seattle-based e-commerce giant “has the largest and most tangible set of long-term growth opportunities of any company in the world.” Sanderson argued that while the value of a business lies on the cash earnings it can produce, it shouldn’t be the main focus for management or investors. 

Why Can't You Be Like Apple?

Sanderson pointed to Apple Inc. (AAPL) as a company that could have used its cash for growth in the early days of the smartphone and digital media markets but chose not to. “Rather than acquiring emerging businesses or making large bets to expand its value-chain, Apple generated a huge amount of earnings, paid $110 billion in taxes, redistributed $215 billion of cash to shareholders and still has $260 billion on its balance sheet,” Sanderson wrote. (See also: Amazon Set for 'Spectacular Collapse.')

In the future, growth for Amazon will come from its retail investments and Amazon Web Services (AWS), the company’s cloud computing unit, said Sanderson, predicting that its position in 12 international markets will generate 40% of its commerce sales, and that excludes China. He sees the company’s growth internationally continuing over time. That’s not to say it won’t continue to kill it in the U.S. as well. With e-commerce only accounting for 9% of retail sales in the U.S., Sanderson said there’s a lot of room for growth. “While initial categories like books and electronics have already seen significant impact (R.I.P. Borders and Circuit City), growth in online sales is now pressuring incumbent business models across most categories of retail,” the analyst said in the research report.

MKM's call comes at the same time that Moody’s Investors Service is warning that the perception that Amazon is outdoing all of its brick-and-mortar rivals may be overstated. In a research report, the firm argued that while Whole Foods is seen as the e-commerce giant's way to overtake the retail food market, online sales paint a different picture. "Many see Amazon's purchase of Whole Foods as further evidence that the online giant is dominating US retail, and the company is likely to remain the preeminent player in online shopping," said Moody's Vice President Charlie O'Shea in a report. "But online sales still account for only about 10% of overall US retail sales, with a much lower percentage in the grocery segment, leaving the big brick and mortar retailers, led by Walmart, still really formidable competitors in the industry." (See also: Wal-Mart ‘Under Siege’ by Amazon, Aldi: Cowen.)

 

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