The coronavirus crisis is pushing shopping online as brick-and-mortar stores close indefinitely.
And that could be a boon for three digital retailers.
This week, Morgan Stanley (NYSE: MS) analysts named Amazon (NASDAQ: AMZN) their top e-commerce pick given the current environment and are also bullish on pet food e-retailer Chewy (NYSE: CHWY), calling the two “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,” wrote lead analyst Brian Nowak in a note.
For Amazon, Nowak wrote that the e-commerce giant’s market share gains and high-margin revenues are accelerating. The company is also seeing strong momentum in its online grocery business, falling oil prices are reducing its shipping costs, and its cloud business is a “stay at home play” given growing usage from existing customers and the fact that Amazon Web Services powers such digital consumer giants as Netflix (NASDAQ: NFLX), Disney’s (NYSE: DIS) Disney+, and Apple (NASDAQ: AAPL).
Nowak did, however, caution that Amazon could see an impact from reduced consumer spending in the recession that we may already be in, and inventory challenges with certain goods as demand surges could hurt business in the near term.
Still, the Morgan Stanley analysts have a $2,400 price target for Amazon shares – 28% higher than the current price.
As for Chewy, Nowak said that the need for consumers to feed their pets during the pandemic, the growing momentum of online grocery adoption, limited supply chain exposure to China, and a less competitive ad market which could help profit margins as reasons to be bullish on the stock.
The analysts have a $33 price target on Chewy shares.
Wedbush analyst Ygal Arounian likes another name in the e-commerce space: eBay (NASDAQ: EBAY).
Arounian raised his rating for the online marketplace this week from Neutral to Outperform, giving the stock a new price target of $38 – 28% higher than the price as of this writing.
“We view the core marketplace as still under pressure, but also view upside potential from the lapping of more onetime in nature 2019 impacts like internet sales tax and marketing headwinds,” Arounian wrote in a note. “While [gross merchandise value] growth is the most important long-term [key performance indicator] for eBay, and there is still plenty of challenge here for eBay to get back to a position of strength, it should make enough progress in the near-term as it narrows its focus to verticals where it’s historically been stronger.”
While Arounian concedes that eBay would be hurt by a long-lasting recession, he also believes eBay will benefit from “the broad-based and increasing social distancing, self-quarantining, and potential for further mandates around store shutdowns and social gatherings.”