Amazon gets its only sell rating on the Street

Published Mon, Apr 27 20208:24 AM EDTUpdated Mon, Apr 27 20204:08 PM EDT

(This story is for CNBC Pro subscribers only.) Amazon's robust profits will be dented by the coronavirus crisis as its money-making segments slow and the cost of doing business increases, according to R5 Capital. The Wall Street firm lowered its rating on Amazon to sell from buy, making R5 Capital the only firm on Wall Street that doesn't recommend owning Jeff Bezos' e-commerce giant. R5 Capital also slashed its price target to $1,987 per share from $2,408 per share, implying a 20% fall from Amazon's closing price of $2,410.11 on Friday. "With the stock, however, having appreciated meaningfully and reaching our $2,408 price target in the face of dramatically worsening current economic conditions and rising future uncertainty, we believe prudence dictates reducing exposure to the equity," R5 Capital analyst Scott Mushkin said in a note to clients. Shares of Amazon have rallied more than 30% this year, while the broader market suffers unprecedented financial disruption from the coronavirus crisis. The e-commerce company is benefiting from the millions of Americans stocking up on food and household items during the lockdown. Some analysts on Wall Street say the virus quarantine will change consumer behavior forever and Amazon will keep all of the customers its accumulated during the stay-at-home orders. While a very fluid situation, R5 Capital's research points to a "bigger and longer" last impact of the COVID-19 on the economy that will increase business costs for Amazon and hurt its strongest segments. "The road back to a vibrant U.S. and global economy appears long an arduous if Asia is any template," said Mushkin. "Further, our research suggests that the risk is high for significant bumps along the way including the potential resurgence of COVID-19, a looming U.S. presidential election, as well as unforeseen negative externalities related to the unprecedented fiscal and monetary stimulus being unleashed across the globe." With this backdrop, R5 Capital said Amazon's earnings on Thursday will show slower growth and higher expenses in 2020 and 2021. The firm reviewed each of Amazon's business segments including online orders, physical stores, third party sellers, subscription services AWS and other advertising assets, and lowered its revenue growth rates for all the segments expect physical stores from the second quarter until 2021. "With our expected slowdown of the four large profit drivers, 3P, subscription services, AWS and advertising, in conjunction with the cost of doing business increasing due to COVID-19, our outlook for profitability has also been reduced considerably," Mushkin said. "It is important to note that our forecast still calls for growth, but not at the heady levels prior to COVID-19 and the resulting economic slowdown. It is also important to note that we still view Amazon as well positioned to gain share over time," added Mushkin. Amazon is one of the most loved stocks on Wall Street. Of the 48 analysts that cover the e-commerce company, 44 have a buy rating, according to FactSet. Three analysts have a hold rating and R5 Capital has the only sell rating. Amazon shares fell 1.4% on Monday. — with reporting from CNBC's Michael Bloom.

Amazon CEO Jeff Bezos announces Blue Moon, a lunar landing vehicle for the Moon, during a Blue Origin event in Washington, DC, May 9, 2019.

Saul Loeb | AFP | Getty Images

(This story is for CNBC Pro subscribers only.)

Amazon's robust profits will be dented by the coronavirus crisis as its money-making segments slow and the cost of doing business increases, according to R5 Capital.

The Wall Street firm lowered its rating on Amazon to sell from buy, making R5 Capital the only firm on Wall Street that doesn't recommend owning Jeff Bezos' e-commerce giant. R5 Capital also slashed its price target to $1,987 per share from $2,408 per share, implying a 20% fall from Amazon's closing price of $2,410.11 on Friday.