Amazon downgraded at Wells Fargo as 'positive revision story on pause'

Investing.com -- Wells Fargo downgraded Amazon (NASDAQ:AMZN ) to Equal Weight from Overweight in a note to clients on Monday, citing multiple headwinds that are likely to pause the company's positive earnings revision story.

The bank also lowered its price target for the stock to $183 from $225, highlighting challenges that may limit Amazon's operating income (OI) growth through 2027.

According to Wells Fargo, while Amazon Web Services (AWS) remains strong, it is "not enough" to drive positive estimate revisions in the near term.

Several factors, including investments in Project Kuiper, pressure from Fulfillment by Amazon (FBA) fees, and moderating advertising contributions, are expected to weigh on Amazon's earnings growth.

The firm warns that "margin expansion could be capped in 1H25 as well" and that the company is unlikely to see the resumption of positive revisions until its July 2025 guidance.

"While the market is more prepared for pressure on 4Q OI, we caution that margin expansion could be capped in 1H25 as well. As such, we move to Equal Weight until visibility into margin expansion resumes," writes Wells Fargo.

Wells Fargo reduced its OI estimates for Amazon by $5.4 billion, $4.5 billion, and $5.5 billion for 2025, 2026, and 2027, respectively, attributing these cuts to slower monetization of merchant services and advertising.

"Amazon remains a margin expansion story," Wells Fargo noted, adding that the pace of this expansion will likely be more moderate than the market currently expects.

The report also points to increasing competition from Walmart (NYSE:WMT )'s expanding fulfillment services, which are now priced 15% cheaper than Amazon's FBA offering.

Wells Fargo believes Walmart's growing fulfillment capabilities could exert pressure on Amazon's fees and merchant services.

Given the challenges, Wells Fargo sees limited visibility into Amazon's earnings recovery in the short term and, hence, lowered its price target and rating on the stock.

Source: Investing.com