Amazon’s Q2 EPS ‘Looks Choppy’, Says Morgan Stanley

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Morgan Stanley analyst Brian Nowak reiterated an Overweight rating and $175 per share price target on Amazon (NASDAQ:AMZN) Wednesday, despite telling investors that “2Q EPS looks choppy”.

Discussing key talking points heading into Amazon’s next earnings release, Nowak said soaring fuel prices will have “minimal incremental impact” on the company’s profitability as higher diesel costs are offset by lower units.

“The macro environment is volatile, resulting in fluctuations in crude and diesel prices. As such, we are updating our AMZN fuel analysis from March, with MS Crude Oil Forecasts increasing ~6%/5% vs prior estimates…driving a 10%/9% increase in our ’22/’23 expected diesel costs per gallon since our last publication. But higher fuel costs are partially offset by lower fulfilled units vs our March 23rd publication, resulting in a net ~$817mn/$56mn ’22/’23 increase in our fuel cost estimates, or ~4%/0% of our estimated ’22/’23 EBIT,” the analyst wrote.

Nowak added that Amazon has multiple levers to offset the impact of higher fuel costs.

Nowak went on to focus on Amazon’s AWS growth, explaining that its “2Q22 CIO survey suggests the cloud backdrop remains strong” despite a slight moderation in IT spending expectations, adding that cloud computing remains atop the CIO priority list”.

“We remain OW AMZN on expected accelerating top-line and improving (and under-appreciated) profitability as the company grows into its fulfillment and shipping overbuild in ’23. 2Q EPS may not be the catalyst as 3Q Street operating profit numbers look too high (we are 23% – $1.1bn below Street 3Q OI) and 2Q results could be a bit mixed (AWS EBIT)…but we are getting close as we expect October’s print to feature better than expected forward revenue and profit guidance,” the analyst concluded.