Morgan Stanley analysts named Amazon (AMZN) - Get Report their top e-commerce pick for the current challenging environment and also said they're bullish on pet food e-tailer Chewy (CHWY) - Get Report, calling the two companies “relative e-commerce safe havens."
"We think investors are likely to first come back to higher quality, free-cash flow generative names with more quantifiable guardrails around [a] reasonable range of 2021 EPS outcomes," lead analyst Brian Nowak wrote in a note on Sunday evening.
Nowak gave five main reasons for optimism about Amazon, including that its market share gains and high-margin revenues are accelerating; the strong momentum seen by its online grocery business; the lower price of oil reducing its shipping costs; its cloud business being a “stay at home play” based on growing usage from existing customers and the fact that AWS powers many leading consumer applications such as Netflix (NFLX) - Get Report, Disney's (DIS) - Get Report Disney+ and Apple (AAPL) - Get Report; and an economic downturn leading to greater cloud adoption by companies evaluating their costs.
Nowak also cited three main risks to Amazon worth monitoring — consumer spending would likely be reduced in a recession; that Amazon being sold out of certain goods as demand surges in the near term may hurt business; and there may be inventory challenges owing to supply chain disruptions from China.
As for Chewy, Nowak said there were four main reasons for bullishness, including that consumers need to feed their pets even during pandemics and recessions; the growing momentum of online grocery adoption; limited supply chain exposure to China; and a less competitive ad market that could help profit margins.
Morgan Stanley has a $2,400 price target on Amazon and a $33 price target on Chewy.
On Monday, shares of Amazon were down 2.7% to $1,735.99 while share of Chewy were down 1.9% to $25.56.