Amazon (AMZN) Price Target Lowered at Morgan Stanley Amid Rising Logistics Workforce Costs, Analyst Expects Stock to be Range Bound in Near Term
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Morgan Stanley analyst Brian Nowak lowered the price target on Amazon (NASDAQ: AMZN) to $4,100.00 per share from the prior $4,300.00 amid rising logistics workforce costs.
The cost of labor is rising and Amazon has announced it is looking to hire 125k new staff earlier this month. New workers will be hired at an increased average starting wage of $18 per hour with a sign-on bonus of $3k in some locations.
Nowak notes that the September announcement was the third of this type in 2021.
“We have written in the past to how AMZN’s growing logistics workforce is set to enable more e-commerce share gains, faster ship speeds (1- day and same-day) and new business opportunities (like third party logistics)... but the cost of labor is rising,” the analyst said in a client note.
“We detail the estimated monthly AMZN US logistics workforce this year (growing from 500k to 700k and hourly wages + benefits rising from $18.82 to $21.82 over the past 9 months). In all, this translates into total labor costs rising ~60% (up ~$4bn) from 4Q:20 to 4Q:21. This also implies labor cost per US unit will rise by 50% since 4Q:20,” Nowak added.
As a result, the analyst has lowered ‘21/’22 EBIT by 16%/19%, ultimately pushing Morgan Stanley 4% below Street '22 EBIT.
“Near-term estimates are heading lower...but in our view it is also important to rememer that rising wages are impacting all businesses (most recently FedEx last week) and AMZN competitors. But even AMZN's scale can't "absorb" this near-term as our high margin vs retail loss breakdown shows how our new model implies core 1P + 3P EBIT margins declining to -11% by 2022, a ~270bp reduction vs 2019 levels. We would expect smaller (in some cases sub-scale) retailers/players to feel the pressure even more. As such, it will be increasingly important to monitor the growing retail partnerships with third party logistics players as they look for economically viable ways to continue to drive/benefit from growing e-commerce,” Nowak concluded.
Finally, the analyst noted that Amazon could struggle to outperform while it ramps up staff investments. As a result, Amazon “may be tactically range bound until retail revenue can re-accelerate and beat expectations in 1H:22e.”
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