What happened
Mighty Amazon (AMZN 1.84%) wasn't energetic enough to keep pace with the stock market on Thursday. The giant retailer's shares inched up less than 0.2% on the day, and were thus trounced by the frothy S&P index's 1.4% gain. Slightly bearish adjustments from a high-profile investment bank were the culprit.
So what
That morning, Morgan Stanley prognosticator Brian Nowak reduced his estimates of earnings before interest, taxes, depreciation, and amortization (EBITDA) for Amazon's full-year 2022 and 2023. The former took a roughly 15% haircut, while the latter was trimmed by around 2%.
Image source: Amazon.com.
Nevertheless, the analyst is maintaining his overweight (buy) recommendation on Amazon stock, and his price target of $4,200 per share. It also remains on the investment bank's Top Pick list of stocks. If achieved, that price target would represent nearly 30% upside to the shares' current level.
As Amazon is famously reliant upon delivery services, Nowak is concerned with rising fuel prices, specifically for the diesel fuel that powers many trucks. In a new research note, he wrote that "We estimate fuel makes up [around] 20% of [Amazon's] total annual shipping cost...or [approximately] $0.78/fulfilled unit."
However, Nowak also thinks that there are "many opportunities for [Amazon] to offset higher fuel costs and drive upside to our still above Street estimates."
Now what
It's notable that the analyst is leaving both his recommendation and price target unchanged. Yes, Amazon will be challenged with higher costs, especially if the recent price increases prove "sticky." But, as Nowak writes, the company has levers it can pull to mitigate the increased expenses. Amazon bulls shouldn't be spooked by his adjustments.
