Higher postal fees will cost Amazon more than $1 billion in 2019, estimates Credit Suisse

  • The proposed uptick in shipping and mailing fees at the U.S. Postal Service could cost Amazon more than $1 billion in 2019, according to Credit Suisse.
  • Analyst Stephen Ju cut his 2019 pro forma earnings per share estimate by nearly 19 percent to $34.99.
  • If the post office receives approval from the Governors of the Postal Service, package and box rates should rise by a range of 5 percent to 11 percent.
  • But Credit Suisse is still positive on the stock. The analyst reiterated his outperform rating and bumped his price target to $2,400 from $2,100.
Jeff Bezos, chief executive officer of Amazon
Getty Images
Jeff Bezos, chief executive officer of Amazon

The proposed uptick in shipping and mailing fees at the U.S. Postal Service could cost Amazon more than $1 billion in 2019, according to Credit Suisse, which cut its near-term estimates for operating profit on the e-commerce behemoth.

"As we roll forward the sensitivity analysis to 2019, we arrive at a potential incremental Shipping Expense range of $400 million to $1.1 billion range with the assumption that 40 percent to 50 percent of U.S. packages are shipped via the Postal Service," analyst Stephen Ju wrote Monday.

Modeling a number of factors including the potential increase in carrier costs, rising labor expenses as a result of Amazon's minimum wage increase and moderating shipping volume, Ju cut his 2019 pro forma earnings per share estimate by nearly 19 percent to $34.99.

Amazon's stock rose 0.3 percent Monday morning.

The Postal Service announced on Oct. 10 it filed notice with the Postal Regulatory Commission — the body tasked regulatory oversight of the agency — of proposed price changes to take effect Jan. 27, 2019, if approved.

Postage for 1-ounce letters is expected to rise to 55 cents from 50 cents.

Meanwhile, Amazon announced earlier this month that it will be raising minimum wage for all U.S.-based employees to $15 per hour starting Nov. 1. Shares of Amazon, up 51 percent this year, have fallen off more than 10 percent since it announced the plans to buoy its minimum wage.

Though met with angst on Wall Street and applause on Capitol Hill by the likes of Sen. Bernie Sanders, I-Vt., some have pointed to the advent of robotics and artificial intelligence in the workplace to ease fears of rising labor costs.

Still likes the stock

"Starting in the second half of 2016, Amazon started to report a meaningful increase in capital expenditures primarily for robotics in its U.S., Europe, and Japan-based fulfillment centers," Ju wrote. "This should over time allow Amazon to demonstrate greater leverage and offset the aforementioned minimum wage hikes."

Despite the rising costs in the near-term, Ju remains positive on Amazon and its stock overall. The analyst pointed to continued profit margin expansion in Amazon's e-commerce segment as it grows its infrastructure, better cash flow as a result of improving advertising and upside to Amazon Web Services forecasts.

The analyst reiterates his outperform rating on the company's stock and bumped his price target to $2,400 from $2,100, implying 36 percent upside over the next 12 months from Friday's close.

President Donald Trump, a frequent Amazon critic, has often taken to Twitter in the past year to blast what he deemed unfair practices at the e-commerce giant and its use of the Postal Service.

For instance, the president reinforced his assessment that Amazon's business is costing taxpayers "many billions of dollars" through subsidized rates at the United States Post Office.

"I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy," Trump tweeted in April. "Amazon should pay these costs (plus) and not have them bourne [sic] by the American Taxpayer."