Why Amazon Is Among Morgan Stanley's Top Picks For Q4, 2021

Amazon.com, Inc. AMZN has been a huge beneficiary of consumer spending shifting away from experiences such as travel, live events, amusement parks and restaurants, according to Morgan Stanley. 

The Amazon Analyst: Brian Nowak has an Overweight rating on Amazon with a $3,750 price target. 

The Amazon Takeaways: About $30 billion to $60 billion of monthly "experience spend" is likely up for grabs for the remainder of 2020, even as the world reopens, Nowak said in a note.

Apart from the shift in spending, Amazon also stands to benefit from the shelter-in-place holiday shopping season, with less mall shopping and more online shopping, and the scope for further government stimulus, the analyst said. 

These factors will likely lead to a 43% increase in e-commerce spending in the second half, an increase from the prior estimate of 33% growth, he said. 

For 2021, Nowak estimates 9% e-commerce growth on the basis of shelter-in-place have having pulled forward about three years of e-commerce adoption in 2020.

Amazon remains one of Morgan Stanley's picks into the fourth quarter and 2021 due to three reasons.

Firstly, Amazon is likely to drive and benefit from the still-inflecting e-commerce spend, the analyst said. The firm raised its 2020 and 2021 revenue estimates for Amazon by 2% each.

"The shift of Prime Day to October should give AMZN a leg up to capture more holiday shopping dollars in this holiday season that is likely to be more "sheltered in," and face stock-out and macro shipping challenges," he said. 

The next Amazon story is profitability, as scale and efficiency drive 40%-plus EBIT revisions even with investment, Nowak said.

Morgan Stanley said it remains bullish on the growth for AWS, as the downturn forces more firms to accelerate their move to the public cloud and the reopening of leisure clients in 2021 help reacceleration.

AMZN Price Action: Amazon shares ended Monday's session 0.43% lower at $3,102.97. 

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