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Many Wall Street analysts this week from various industries made note of Amazon disrupting the companies they cover.
CNBC combed through recent research to find stocks that are feeling the Amazon effect in different ways. The list includes names such as Costco, FedEx, XPO and Ulta.
“Costco faces the Amazon wall of worry, yet we believe their sticky membership model creates loyalty which can drive sales and profits higher for years to come… Positive ticket trends, solid digital growth, and additional lift in renewal rate are all reasonable on a 12-18 month outlook,” said Evercore ISI analyst Greg Melich who recently initiated coverage on the stock as outperform.
Earlier this week, FedEx reported earnings per share and revenue below expectations for the third quarter. There had been increasing chatter in the analyst community that Amazon could be emerging as a competitor to the shipping giant. One analyst says that is most certainly investor perception. “While we continue to argue Amazon’s ambitious network build out is entirely to provide for retail distribution, it is hard to argue with a market that has nearly decided Amazon will eventually operate a two-way delivery network to rival FedEx or UPS,” wrote Barclays analyst Brandon Oglenski in his earnings recap note.
In an interview on CNBC’s Mad Money, Jim Cramer asked FedEx CEO Fred Smith why the company brought up Amazon on the earnings conference call at all. Smith said FedEx felt compelled to bring up Amazon on the call after CNBC reported that Amazon could take market share away from the company. “We certainly don’t mean to be defensive, but we do think we need to answer provocative questions when they’re raised, including those brought up by CNBC,” Smith said.
The stock is down 28 percent over the last 6 months.
Earlier this week, Amazon launched, Belei, its first in house skin care line. “It’s a certainty that Amazon is a presence in beauty, but how it develops its range relative to the specialty model is still TBD,” said Jefferies analyst Stephanie Wissink responded in a note to clients. She went on to say, “It’s possible Amazon could garner upwards of 10% share of the core beauty marketplace over time.”
Shares of Ulta are down 1.68% this week.
Last week shipper XPO Logistics disclosed the termination of their COO, Kenny Wagers.“We believe that Mr. Wagers’ termination was driven in part by the loss of $600m of annual Amazon business earlier this year, either directly or indirectly. We don’t know if Amazon pulled its business due to Mr. Wagers’ leaving to join XPO last year, but we believe the customer loss factored into XPO’s decision to part ways with the executive,” Citi analyst Andrew Kaplowitz said in a note.
XPO is down 50 percent over the last 12 months.
Here’s what else the analysts say about the Amazon effect:
“Costco faces the Amazon wall of worry, yet we believe their sticky membership model creates loyalty which can drive sales and profits higher for years to come… Positive ticket trends, solid digital growth, and additional lift in renewal rate are all reasonable on a 12-18 month outlook…. Membership count half of Amazon Prime and higher spend/member provide room for growth as long as they don’t let Amazon convenience chip away at their loyalty… Positive revisions & multiple appreciation should take the stock higher…. We see high single digit total return prospects with a $260 share price and another 2-4% return from dividends including another special likely in the next 18-24 months…”
“Valuations for both stocks(UPS & FDX) has come under significant pressure in the past year, likely fueled by macroeconomic concerns and perceived competitive threats from Amazon… While we agree recently softer transport data suggests softer macro outcomes early in 2019 we think current valuation levels, especially in FedEx shares, more than compensates for potentially slower earnings outcomes… However, while we continue to argue Amazon’s ambitious network build out is entirely to provide for retail distribution (one-way delivery to consumers), it is hard to argue with a market that has nearly decided Amazon will eventually operate a two-way delivery network to rival FedEx or UPS…”
“It’s a certainty that Amazon is a presence in beauty, but how it develops its range relative to the specialty model is still TBD… ULTA‘s recent report, with a 9.4% comp and 7ppts driven by traffic is an indicator that with the right, curated assortment, ULTA is able to protect its position and gain share… The trial & discovery, service orientation of specialty is expected to remain a clear advantage over the long term… Amazon may ultimately draw on replenishment purchase activity, which for high loyalty brands can account for 60-65% of annual volume… If we assume brand direct (DTC), specialty, dept stores, and Amazon split the repeat purchase portion, it’s possible Amazon could garner upwards of 10% share of the core beauty marketplace over time (15% of the replenishment volume)…”
“[After the March 11] close XPO disclosed the termination of Chief Operating Office Kenny Wagers after less than a year at the company (joined in April 2018)…Potential Casualty from Big Revenue Loss: We believe that Mr. Wagers’ termination was driven in part by the loss of $600m of annual Amazon business earlier this year, either directly or indirectly… We don’t know if Amazon pulled its business due to Mr. Wagers’ leaving to join XPO last year, but we believe the customer loss factored into XPO’s decision to part ways with the executive… The sudden loss of Last Mile postal injection business in late 4Q pressured results vs our expectations and the subsequent loss of business, which together with the postal injection business totals $600m, forced the company to lower 2019 financial guidance in February for the second time in two months… With shares down sharply from 2018 highs due to the guidedowns and a 4Q short report, M&A has been pulled off the table as the company focuses instead on buying back stock… So either directly or indirectly the loss of the Amazon business appears to have contributed to the company’s decision to terminate Mr. Wagers…”
“MongoDB faces a number of risks, including: 1) the business may not achieve or sustain profitability; 2) MongoDB is burning cash and we do not expect it to generate positive free cash flow on a full-year basis until FY21; 3) the database software market for both relational and nonrelational products is highly competitive and includes vendors that are much larger than MongoDB, including Oracle, Microsoft, IBM, Amazon, and Google, and other NoSQL vendors like DataStax and Couchbase….During F4Q19, Amazon released DocumentDB, which made investors question the defensibility of MongoDB’s position and how the company would fare going head to head against the cloud computing giant… On the [March 13] call, Mr. Ittycheria explained that because of the popularity of document-based databases, other companies have tried to emulate MongoDB’s capabilities. However, none of these imitation databases are built on a true document architecture.’
