5 Reasons Why Amazon Is Morgan Stanley's Top Pick

E-commerce giant Amazon.com, Inc. AMZN has won Morgan Stanley's seal of approval in the face of a coronavirus pandemic threatening the economy. 

The Amazon Analyst

Analyst Brian Nowak maintained an Overweight rating on Amazon with a $2,400 price target.

The Amazon Thesis

Amazon's share gains, improving one-day efficiency, rising mix of high-margin revenues and expectations of over 20% consensus earnings beats have made Morgan Stanley bullish on the company, Nowak said in a Sunday note. (See his track record here.)

Secondly, evidence suggests online grocery demand is surging, the analyst said. Morgan Stanley expects the ease and convenience of shopping online for groceries and consumables to lead to more long-term online grocery purchasing, he said. 

Amazon's access to a growing database of the consumables that each household orders will help it to better curate and target people going forward and sustainably penetrate the $800-billion addressable U.S. grocery market, Nowak said. 

Thirdly, the near 25% drop in the price of oil will likely drive a $2 billion to $3 billion operating profit tailwind, as about $50 billion in estimated 2020 shipping costs for the company are related to fuel, the analyst said.

Amazon is a near-term, dark horse stay-at-home play, he said. 

The company's AWS powers many leading consumer applications such as Walt Disney Co's DIS Disney+, Netflix Inc NFLX, Apple Inc. AAPL, Snap Inc SNAP and other leading social video players, Nowak said.

These companies are likely to see ramping consumer use and compute/storage/AWS needs, which in turn is likely to benefit Amazon, the analyst said. 

This will lead to faster AWS adoption over the long term, he said. 

"The extent to which we are entering an economic downturn is likely to lead to faster long-term public cloud adoption as companies evaluate costs more closely and look for more efficient long-term business structures."

The stock was down 2.46% at $1,741.15 at the time of publication Monday. 

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Photo courtesy of Amazon.