Amazon Could Gain 20% by Entering Health Care

Shares of Amazon (AMZN) have done well this year, climbing about 50%. But could there still be more upside left, possibly even another 20%?

According to Nomura Instinet analyst Simeon Siegel, that appears to be the case. He argues that Amazon is still a buy as he hiked his price target to $1,360, although he says this could prove to be conservative. A recent margin analysis has Siegel feeling "increasingly positive."

As Amazon shifts to higher-margin products, overall margins can expands. Over the long term, this could add 1,000 basis points to gross margins, the analyst argues. As a result, the company would be able to dump even more cash into its businesses and widen its "moat" against competition.

Although many retailers are struggling in the rapid shift that's occurring thanks to Amazon and other e-commerce platforms, some are fighting back. Namely, Walmart (WMT) seems to be the favorite for physical retailers who have the best shot, while others like Home Depot (HD) seem somewhat isolated from Amazon. 

The optimism didn't stop there, though. Morgan Stanley's U.S. internet and healthcare teams were collaborating on Amazon, saying it's a "foregone conclusion" that the internet giant will eventually look to disrupt the health care sector. Retail -- think pharmacy -- has the lowest barriers to entry and plays to Amazon's strengths, the team argues. However, CVS Health (CVS) and Walgreens Boots Alliance (WBA) can still adjust their business models and cut costs to fight back.

Amazon could also get into the medical supply and life sciences distribution business, which are "less rich" targets but appear to be "low-hanging fruit," according to Morgan Stanley. This could hurt companies like Cardinal Health (CAH) , which has the most exposure, and to a lesser extent McKesson (MCK)  . Others, like Thermo Fisher (TMO) , Henry Schein (HSIC) and Patterson (PDCO) could suffer margin compression and/or market share loss.

Amazon stock was down 0.29%, to $1,126.63, in Monday morning trading.

Amazon wouldn't be the only one making a huge bet on healthcare:

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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.