Amazon is increasing its workforce in 2021. Tom Williams/Getty Images
Morgan Stanley reduced its price target for Amazon stock from $4,300 to $4,100 Monday, but retained its overweight rating.
The retailer is under profit pressure, as it employs thousands of people and raises their wages.
However, the $4,100 target still represents a 21% increase over Monday's intraday stock prices of $3,396.
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Morgan Stanley said Monday that Amazon's plans for hiring thousands of people and increasing wages will likely cause pressure on its profit. The Morgan Stanley analyst reduced its price target and projected profitability on Monday.
Although the investment bank reduced its price target by almost 5% from $4,300 to $4,100, it maintained its overweight rating.
Morgan Stanley believes Amazon's workforce growth will enable it to increase its market share, speed up shipping times, and open new business avenues like third-party logistics. In a research note, Brian Nowak, an analyst, stated that "the cost to labor is rising."
Amazon announced earlier this September that it would hire 125,000 people to fulfill and transport jobs in the US. This is on top of the 40,000 technology and corporate jobs it planned to increase. Amazon also stated that it will increase its starting wage to $18 an hr and to as high as $22.50 an hr in certain locations. Amazon offers a $3,000 bonus for signing up in certain locations.
Morgan Stanley forecasts that Amazon's US logistics workforce will increase to 700,000. This is an increase of 500,000 from 500,000. The bank's analysts predict that total labor costs will rise by approximately $4 billion or 60% in the fourth quarter 2021, compared to the same quarter 2020.
The bank was able to reduce its 2021 earnings before taxes projections by 16% to $5.6 Billion and 19% to $9.5 Billion for 2022.
Amazon stock's $4,100 price target suggests more upside. This is despite Monday's close at $3,396 suggesting a 21% increase.
Nowak wrote that "Near-term forecasts are falling...but it is important to remember that rising wage costs are affecting all businesses (most recently FedEx last Wednesday) and AMZN competitors."
Amazon's stock rose 5.2% last week, making it the best year ever.
