Amazon.com Inc.’s plans for higher wages and a bigger workforce will put pressure on the company’s profit and EBIT, Morgan Stanley says, driving down analysts’ price target on the e-commerce giant.
Morgan Stanley maintained its overweight stock rating but cut its price target to $4,100 from $4,300 in a Monday note.
Amazon stock was trading at $3,414.65 late Monday, with shares up 4.8% for the year to date. The S&P 500 index
has gained 18.5% for the period.
“Our analysis of Amazon’s 700,000 person U.S. logistics workforce and rising wages reveals more profit pressure ahead as we lower ‘21/’22 EBIT by 16%/19%,” analysts led by Brian Nowak wrote.
“We have written in the past to how Amazon’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.”
Amazon is competing for talent in a tight labor market. Though the company said 1 million people recently applied for jobs during a national hiring event, retaining valuable workers is equally important. Companies are offering higher pay and more benefits to remain competitive.
“While part of this head count/wage growth was in our previous estimates (post the 2Q:21 guide-down) much of it wasn’t… in particular the size of the incremental head count and ~$2 dollar wage increases to the new/existing employees over the past five months,” Morgan Stanley said.
Analysts note that this pressure is being felt across Amazon’s competitors and other companies.
“We would expect smaller (in some cases subscale) 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.”
Heading into the holidays, many companies are also looking for seasonal workers to help with a surge in shopping and online orders. Among the companies looking for thousands of new hires now are Macy’s Inc.
which said last week it’s looking for 76,000 workers, with 28,000 positions expected to extend beyond the holiday season.
Morgan Stanley estimates that Amazon’s labor costs will rise 60%, or about $4 billion, between the fourth quarter of 2020 and the same period in 2021.