Here’s Another Reason to Buy Amazon (AMZN) Stock

Investors didn’t need another reason to buy Amazon (AMZN) stock, but management recently gave them one anyway. The e-commerce giant announced it was raising the minimum wage across the entire company to $15 per hour — more than double the federal minimum wage of $7.25 per hour. This isn’t a game-changer. But it is yet another positive development in the Amazon narrative. Importantly, it delays and mitigates antitrust risks.

Nomura analyst Simeon Siegel has performed a deep dive into the the financial impact that this wage hike could have on AMZN’s profitability.

Siegel noted, “Although there is clearly room for judgement and there are myriad assumptions, our analysis leads us to believe that the combined incremental wage expense netted out for our estimated savings from phasing out incentive benefits, would likely result in ~$400mn to $1.9bn of incremental expenses, ~15bps to 70bps of expense deleverage (further offset by any business and image benefits from this decision), based on the average wage rate prior to the announcement […] We also note that our analysis does not really shine a light on the big picture of this announcement and somewhat ignores the potential good this does for AMZN, with respect to public and political policy, improved employee turnover, and acquiring from a pool of higher caliber talent. Said another way, the topic of conversation here was likely not intended to be one centering around potential higher expenses, but likely how AMZN is now setting a new benchmark across the rest of the retail landscape that many may have difficulty grappling with,” the analyst continued.

Net net, Siegel reiterates a Buy rating on AMZN, with a price target of $1,990, which represents a potential upside of 7% from where the stock is currently trading. (To watch Siegel’s track record, click here)

Wall Street’s confidence on the e-commerce titan speaks for itself; AMZN has received a whopping 39 ‘buy’ ratings vs. only 2 ‘hold’ ratings in the last three months. Meanwhile, the $2,182.38 price target suggests a potential upside of 15.5% from the current share price. (See AMZN’s price targets and analyst ratings on TipRanks)



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