Amazon's profits may be hammered in the near-term as it works through surging prices for the diesel fuel that power its vast logistics operation, warns Morgan Stanley analyst Brian Nowak.
Nowak slashed his 2022 operating profit estimate on Amazon (AMZN) by 15% on an expectation of sustained higher diesel prices. The analyst notes fuel makes up about 20% of Amazon's total annual shipping costs.
Nowak says the higher cost for diesel caused him to mark up his 2022 fuel expense estimate for Amazon by a whopping $6 billion.
The analyst sees fuel price headwinds to weigh on Amazon's profits in 2023, too, but to a lesser extent than in 2022.
Despite the profit hit, Nowak kept Amazon's stock at a top pick with a $4,200 price target.
Amazon's stock fell slightly to $3,259 in Thursday trading.
In light of the West's sanctions on energy-rich Russia for its war on Ukraine, fuel prices have soared.
The price of diesel fuel has surged 25% since the end of February. Prices are up more than 62% from this time last year.
To be sure, Amazon investors will have to balance short-term margin pressure from fuel with two potential upcoming catalysts to the stock.
The first is a 20-for-1 stock split that is slated to occur if approved by shareholders on June 6.
Amazon's stock split is the fourth one in its history. The last split came in September 1999.
Meanwhile, Amazon is also executing on a new massive $10 billion stock buyback plan.
Amazon shares continue to trade with a somewhat bearish bias, reflecting perhaps near-term margin worries.
The stock is up 4% in the past year, compared to a 14% gain for the S&P 500. Shares are the second worst performer in the FAANG [Meta Platforms (formerly Facebook), Amazon, Apple, Netflix, Google] complex in the last 12 months, with Netflix leading the way lower at a 30% drop.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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