Time to Lock In Profits on Amazon? Morgan Stanley Says Yes

Amazon is one of the primary beneficiaries of stay-at-home orders, but that dynamic has largely played out in the stock, according to one analyst.
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Amazon shares have had a notable run during the coronavirus pandemic, but one analyst thinks it's time to pump the brakes.

Although it remains positive on the stock overall, Morgan Stanley wrote in a note on Monday that the stay-at-home boost has "played out for the most part" in Amazon's stock, and advised taking profits. Amazon  (AMZN) - Get Report shares rose 1.4% on Monday to $2,407.55, and are up about 27% year to date amid losses across all the major stock indexes. 

Amazon's stock has been one of the primary beneficiaries of widespread stay-at-home orders, with millions more consumers turning to online shopping on a regular basis for essential goods, namely food and household products. 

Morgan Stanley noted that Amazon shares have already exceeded its price target of $2,400 per share, and removed Amazon from its Fresh Money list. 

Wall Street analysts are broadly positive on Amazon shares in the longer term, partly based on the notion that the company's core services of e-commerce and cloud will emerge from the pandemic even stronger and indispensable than before. 

But that doesn't mean there aren't risks to watch for when Amazon reports its latest financial results. The company is expected to release its March quarter earnings on April 30 after the close of trading.

In a note last week, Mizuho Securities analyst James Lee cut his price target for Amazon shares from $2,350 to $2,300, writing that its growing and highly profitable advertising business is likely to take a hit from the coronavirus.  

The pandemic and uncertain economic outlook have damaged demand for digital advertising, and Amazon's ad segment will decelerate to a rate of 28% growth this year, according to Lee, down from a prior forecast of 40%.

The surge in demand for e-commerce could also carry short-term risks to Amazon's earnings, Christian Magoon CEO of Amplify ETFs told TheStreet last week. 

Amazon is likely looking to "double down" on its core business right now, he said -- which includes hiring by the tens of thousands, and other efforts aimed at shoring up its e-commerce infrastructure in a time of increased demand for deliveries of essential goods. 

Historically, Amazon shares have reacted to lower-than-expected results on net income, and that dynamic may play out again in its upcoming earnings report, said Magoon. 

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