Next week will see Amazon (AMZN) step up to the earnings plate. The company will deliver 4Q21’s financials on February 3 (Thursday, AMC) and investors will be hoping the performance will enable the stock to perform a turnaround. So far, shares have retreated by 15% in January’s market wide carnage.
Don’t get your hopes too high, though, appears to be the message from Wedbush’s Michael Pachter. The analyst expects “gloomy year-end results driven by macroeconomic factors.” He attributes his bearish outlook to the "ongoing supply chain crisis and full U.S. employment," which "likely limited Amazon’s fulfillment capabilities during the holiday quarter.”
Several years of costly investments, to assert more control over the shipping trajectory of its products, have helped Amazon mitigate some supply chain issues. Yet, Pachter notes that according to SJ Consulting Group, around 30% of its own packages are still reliant on delivery partners. “This means that industry-wide shortages in shipping containers, truck drivers, and readily available ports likely impacted delivery times and caused strain for many orders as shipping containers surged from under $2,000 before the pandemic to over $20,000 with multi-week delays,” Pachter explained.
Moreover, due to customers hoping to avoid future delays, supply chain issues were probably further exacerbated by “elevated” shopping levels for products already in high demand, such as semiconductors.
On top of these headwinds, Pachter thinks that during the quarter, Amazon was also likely negatively impacted by the U.S. labor market, which fell to a 3.9% unemployment rate in December. Accordingly, Pachter thinks Amazon was probably hit by “accelerating wage growth as well as a higher mix of shorter-term workers amid a lax job environment.”
It all implies Amazon will likely put a lid on expectations for the foreseeable future.
“The combination of a national unemployment rate that is expected to continue dwindling until year-end and an ongoing supply chain fiasco leads us to believe that management will be conservative when guiding investors on a top-line and profitability basis,” the analyst added.
Not everything is doom and gloom, however. Pachter believes that Amazon is well-placed for strong growth over the long term, noting: "We see significant long-term growth opportunity as management continues to build out its cloud arm and marketplace capabilities to more consumers, and advertisers, worldwide."
All in all, Pachter rates AMZN shares an Outperform (i.e. Buy) along with a $3,950 price target. This figure suggests shares will climb 40% over the next 12 months. (To watch Pachter’s track record, click here)
Ongoing headwinds or not, there are currently 30 AMZN reviews from Wall Street analysts and all are positive, making for a Strong Buy consensus rating. The outlook calls for one-year gains of ~47%, considering the average target currently stands at $4,135 and change. (See Amazon stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.