Amazon gets rare underperform rating on risks from higher expenses, inflation –

The logo of Amazon is seen at the company logistics center in Lauwin-Planque, northern France, February 20, 2017. REUTERS/Pascal Rossignol

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March 30 (Reuters) – Inc (AMZN.O) received a rare “underperform” rating from BNP Paribas Exane on Wednesday, with the French brokerage saying the e-commerce giant faces a bumpy ride ahead due to surging inflation and higher expenses.

Analyst Stefan Slowinski said investments during the COVID-19 pandemic to build fulfillment centers for faster deliveries and employee bonuses to keep its warehouses staffed in a tight U.S. labor market may eat into the company’s margins.

He added that capital expenditure could grow in the mid-teens, initiating with a price target of $2,800.

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Amazon’s shares were down about 1% at $3,354 in early trading in a weak broader market.

Of the 58 brokerages covering Amazon, 20 rate the stock “strong buy”, 36 “buy”, one “hold” and one “sell”, according to Refinitiv data. The median price target is $4,000.

Amazon boomed during the pandemic as consumers were highly dependent on online shopping for everyday essentials, but those shoppers are now returning to stores.

Customers are also cutting back on discretionary spending in a highly inflationary environment, at a time when costs of raw materials, procurement and shipping are rising for companies.

“While margin expansion is possible, clearly with high inflation the consumer is under pressure… Amazon is already increasing prices on their customers by increasing their Prime pricing,” Slowinski said.

He added that Amazon would not raise pricing on many products to match inflation and would probably take a hit.

The company would need to allocate capital expenditure for its cloud business, as it aims to expand footprint by about 30% in a competitive market, he said.

The stock is up 1.6% as of Tuesday’s close, after tumbling as much as 20% during the selloff earlier this year.

Peers in the $1 trillion and larger club, Microsoft (MSFT.O) and Alphabet (GOOGL.O), have declined 6% and 1.6% ,respectively. Apple has gained 0.8% and Tesla Inc (TSLA.O) has added 4%.

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Reporting by Nivedita Balu in Bengaluru; Editing by Amy Caren Daniel

Our Standards: The Thomson Reuters Trust Principles.