Morgan Stanley Bullish on Amazon (AMZN) Stock as It Invests in EV Company


When one thinks about Amazon (AMZN), there is much to think about, including its retail prowess, cloud domination and rapidly growing advertising business. But earlier this month, Amazon gave investors and fans something new to chew over: The company invested $700 million in Revian, a Michigan-based electric-vehicle manufacturer. At first glance, that may sound strange. Why would Amazon — an e-commerce giant — be investing in an electric vehicle startup? Not only are they in completely different industries, but Amazon is not a venture capital firm and $700 million — even for one of the world’s largest companies — is a pretty sum.

Well, as Amazon looks to continue growing its delivery fleet — whether through the air or on the ground — Morgan Stanley analyst Adam Jonas sees this investment as a partnership opportunity for Amazon. The analyst reiterates an Overweight rating on the stock and $2,200 price target. (To watch Jonas’ track record, click here)

While Jonas thinks this is a massive piece of news for the auto industry (more so than for Amazon), he says that Amazon “has a vested interest in managing the marginal cost of its transport and logistics expenses. Dense networks, predictable routes, and start-stop duty cycles are ideal for all-electric vehicle architectures,” making this a smart partnership for both sides.

This move also provides Amazon a way into the transport business. While many may see Tesla and Amazon as completely separate companies, Jonas says Amazon is “making a bold move right into US-made EVs. We view Amazon and Tesla as competitors rather than partners/collaborators in advancing the future of transport.”

Amazon is desperately looking for ways to cut its dependence on third-party delivery companies, including UPS, USPS and FedEx. It is estimated that the company spent more than $20 billion dollars on shipping in 2018, which could be cut drastically if they bring that in-house. Though still small, Amazon is increasing its fleet of trucks, cargo planes and last-mile services to fulfill this need. If they can do this, they will have much stronger control over the supply chain and, perhaps, be able to cut prices and provide an even more heightened experience to customers.

There is no doubt that Wall Street loves Amazon. The company continues to grow at a torrid pace, with multiple revenue operations contributing to bottom-line performance. TipRanks analysis of 37 analyst ratings on the stock shows a Strong Buy consensus, with 36 analysts recommending Buy and one saying Hold. The average price target among these analysts stand at $2,121.19, representing a 29% upside. (For more insights on AMZN, get a free research report)

 

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