Amazon should suffer less from an economic slowdown than FedEx, according to a Bank of America analyst. (Photo: 123RF)
What to do with titles from Amazon, Aurora Cannabis and Kinross Gold? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed.
Amazon (AMZN, $123.53): Four reasons the company will weather the economic downturn better than FedEx
Last Friday, the title of FedEx fell 21% after announcing prematurely that its financial results for the first quarter of its fiscal year 2023, ended at the end of August, would be lower than expected.
Company management said demand for services from its two main customers, Target and Walmart, was less than expected.
That could send a signal that demand for shipping packages purchased online is waning, but Amazon’s stock reacted to the FedEx news by falling just 2%, while the S&P 500 index lost 1%.
Bank of America analyst Justin Post sees four reasons why Amazon will be less affected than its competitors in the event of a global economic slowdown: “(1) Amazon no longer uses FedEx delivery services. (2) 50% of Amazon’s sales volume is concentrated in the United States. (3) Amazon’s customer base is on average more affluent than that of the “Big-3” (Target, Walmart and eBay) and the company did not detect a slowdown in demand for consumer discretionary in the second quarter. (4) Amazon hosts a large number of third-party seller sites and offers fast shipping times, so the company could gain market share at the expense of competitors using FedEx services.”
The analyst recalls that Amazon anticipates revenue growth of 9% in the third quarter, excluding variations in currency conversion rates. “Even though sales volumes are not immune to recessions, we expect some strength in the third quarter relative to the rest of the industry due to Prime Days,” the analyst said.
Prime Days are days when the company offers exclusive discounts to subscribers of its Prime service. This summer, they took place on July 12 and 13.
Justin Post adds that according to figures from Bank of America on the use of credit cards and debit cards, online sales rose 4% year on year for the months of July and August. “That said, growth during the last week of August and the first week of September showed signs of weakness. Spending during the week ended September 3 was down 2% year-on-year. If the decline were to continue by the end of the third quarter, it could affect online retailers, including Amazon.
The analyst reiterates his buy recommendation on Amazon’s stock and its one-year target price of US$170.
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