Amazon's price target cut by Morgan Stanley as the bank sees hiring pressure building and wage costs surging

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Amazon's price target cut by Morgan Stanley as the bank sees hiring pressure building and wage costs surging
Amazon has been increasing its workforce during 2021. Tom Williams/Getty Images
  • Morgan Stanley on Monday cut its price target on Amazon stock to $4,100 from $4,300 but kept its overweight rating.
  • The investment bank sees the retailer facing profit pressure as it hires thousands of people and raises wages.
  • But the $4,100 target still implies a 21% gain from Monday's intraday stock price of $3,396.

Amazon's plans to hire thousands of people and increase wages will likely put pressure on its profit, said Morgan Stanley on Monday in cutting its price target and profitability projections on the e-commerce behemoth.

The investment bank lowered its price target by nearly 5% to $4,100 from $4,300 but kept its overweight rating intact.

Morgan Stanley said Amazon's workforce growth will allow it to capture further gains in market share, increase shipping speeds, and open doors to new business avenues such as third-party logistics. However, "the cost of labor is rising," said analysts led by Brian Nowak in a research note.

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Amazon earlier in September said it would hire 125,000 people for fulfillment and transportation jobs across the US, coming on top of 40,000 corporate and technology jobs it had planned to add. It also said it would bump up its average starting wage to $18 an hour and up to $22.50 an hour in some locations. And Amazon is offering a $3,000 sign-on bonus in certain places.

Morgan Stanley estimated Amazon's US logistics workforce this year will grow to 700,000 from 500,000. And with rising wages and benefits, the bank's analysts foresee total labor costs rising about $4 billion, or by 60%, in the fourth quarter of 2021 from the same quarter in 2020.

That prompted the bank to lower its projection for 2021 earnings before interest and taxes by 16% to $5.6 billion, and by 19% to $9.5 billion for 2022.

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The $4,100 price target still suggests further upside for Amazon stock, which from Monday's price around $3,396 implied a 21% gain.

"Near-term estimates are heading lower...but in our view it is also important to remember that rising wages are impacting all businesses (most recently FedEx last week) and AMZN competitors," wrote Nowak.

This year, Amazon's stock had advanced 5.2% through last week.

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