Amazon's Bid For Whole Foods Has Wide-Spanning Implications For US Transportation Companies

Even as analysts are working overtime analyzing the implications of Amazon.com, Inc. AMZN's deal to buy Whole Foods Market, Inc. WFM for the retail sector, Deutsche Bank looked at what the proposed M&A transaction means for the transportation sector.

Huge Boost To E-Commerce Sales

Analyst Amit Mehrotra believes the deal will have wide-ranging implications for transportation companies. The analyst expects the deal to accelerate U.S. e-commerce sales.

Mehrotra noted that e-commerce sales rose 15 percent year over year in 2016, accounting for 12 percent of the total retail sales, excluding auto and gas.

Amazon's Operating Profit To Swell

Explaining the rationale, Deutsche Bank said Amazon's move would notably increase touch points with customers, as food & beverage accounted for the biggest share of consumer spending in 2016. This, according to the firm, would present more cross-selling opportunities vis-à-vis Prime, and in turn volumes.

According to the firm, a 500-basis-point change in the gross shipping costs of Amazon and Prime revenue would add $1.25 billion to its operating profits, or about 10 percent of the equity purchase price of Whole Foods.

Deal's Implication For Transportation Stocks

• The deal to be unequivocally positive for XPO Logistics Inc XPO, given the company's operating leverage to accelerating e-commerce trends; The implications to overall e-commerce are positive for shares.
• The firm sees potential positive read-through implications for less-than-truckload companies such as Old Dominion Freight Line ODFL, YRC Worldwide Inc YRCW and ArcBest Corp ARCB. This is due to smaller shipments being spread over a large number of distribution centers.
• The firm is of the view the truckload companies are at a disadvantage, as it noted that Werner Enterprises, Inc. WERN, which has a large exposure to retailers, unperformed on Friday.
• However, the firm said it is difficult to assess the impact of the deal on FedEx Corporation FDX and United Parcel Service, Inc. UPS, as it is very difficult for Amazon to develop an effective national last mile network. Additionally, the focus of FedEx and UPS is B2B volume, with traditional e-commerce accounting for a relatively small proportion of their businesses.

Additionally, the firm said, "Amazon's move may also be defensive vis-à-vis the United States Postal Service (USPS), given its precarious financial position and the fact that USPS accounts for a majority of Amazon's last mile deliveries."

At Time Of Writing

• XPO Logistics was rallying 2.06 percent to $62.79.
• Whole Foods shares were advancing 1.07 percent to $43.13.
• Amazon was up 0.89 percent at $996.52.
• ArcBest shares were jumping 2.26 percent to $20.35.
• Werner Enterprises was advancing 0.78 percent to $29.23.

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