Amazon stock has climbed around 2% so far in 2021.
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Higher costs and a focus on growth are likely to weigh on
stock heading into earnings, according to analysts at investment bank Baird. But they said any weakness in the share price is just an opportunity to buy.
Rising input costs are likely to be a key theme across earnings season, Baird’s Colin Sebastian and Dalton Kern said Tuesday, as they lowered operating income estimates for Amazon for the current quarter and 2022.
The e-commerce giant and leader in cloud services for commercial customers faces higher expenses related to labor, logistics and transportation, product costs, and technology infrastructure, the analysts said. This is likely to put pressure on the stock.
“While we had hopes the impressive growth in Amazon’s services revenues would swing investor sentiment more positively before year-end, there appear to be enough macro headwinds and legitimate concerns around expenses to continue holding back shares in the near term,” Sebastian and Kern said. “We’d be buyers on weakness.”
The team at Baird cut their operating income estimates to $7.6 billion for the fourth quarter of 2021, compared with analyst consensus of $8.1 billion, and $40 billion for 2022, compared with consensus expectations of $42.6 billion.
“We assume that Amazon will remain focused on growth and expansion of global services, which will require ingestion of higher ‘front-line’ labor costs, transportation and logistics expenses (including fuel and equipment inflation), product costs, as well as technology (servers, chips and networking equipment, etc.),” the analysts said.
The short-term impacts result in no change to Baird’s upbeat medium-and-long-term outlook for Amazon stock, which was trading hands around $3,270 Wednesday. The analysts have a price target on the shares of $4,000, implying 23% upside.
(ticker: AMZN) stock climbed 0.8% in early trading Wednesday and is up 0.6% so far this year.
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