Amazon gets rare negative call as Morgan Stanley cuts price target, citing rising wages

Published Mon, Sep 27 20217:30 AM EDTUpdated Mon, Sep 27 202110:13 AM EDT

Amazon faces profit pressures due to rising wages, Morgan Stanley said in a rare negative note for the online retail giant. Morgan Stanley lowered its price target on Amazon to $4,100 from $4,300. "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," Morgan Stanley's Brian Nowak said in a note to investors. Amazon announced plans this month to hire an additional 125,000 fulfillment and transportation workers and boost its average U.S. starting wage to more than $18 and hour — the company's third announcement in 2021 of higher base pay in the U.S. The rising wages translate into Amazon's total labor costs rising about $4 billion, or around 60%, from the fourth quarter of 2020 to the fourth quarter of 2021, according to Morgan Stanley's analysis. That means labor cost per U.S. unit will rise 50% year over year in the fourth quarter, Morgan Stanley found. "Rising wages are impacting all businesses...and AMZN competitors," Nowak said. "But even AMZN's scale can't 'absorb' this near-term." Despite the $200 cut in target price, Morgan Stanley's new projection represents nearly 20% upside from the stock's closing price Friday of $3,425.52. The firm reiterated its overweight rating on the stock. Amazon is universally loved on Wall Street, so it's unusual for any negative notes to come out on the stock. The shares have 31 buy ratings and no sell ratings, according to TipRanks.com. And while Morgan Stanley expects Amazon to feel pressure from wage inflation, the firm predicts smaller retailers will be hit even harder. "As such, it will be increasingly important to monitor the growing retail partnerships with third party logistics players (like UBER/DASH...) as they look for economically viable ways to continue to drive/benefit from growing e-commerce," Nowak said. Shares of Amazon have underperformed the market this year, up 5.2% in 2021 compared with the S & P 500's 18.6% gain in the period. —CNBC's Michael Bloom contributed reporting.

A worker sits on a wall dividing an informal settlement from the new Amazon fulfillment center, which is under construction at RMSG Alamar Industrial Park, in Tijuana, Mexico September 7, 2021.

Jorge Duenes | Reuters

Amazon faces profit pressures due to rising wages, Morgan Stanley said in a rare negative note for the online retail giant.