Market Overview

Amid Grocery Delivery Shutdowns, It Appears Even Amazon Cares About Costs

Amid Grocery Delivery Shutdowns, It Appears Even Amazon Cares About Costs, Inc. (NASDAQ: AMZN) is signaling retreat.

The e-commerce giant is pulling its AmazonFresh grocery delivery service from suburban regions in Pennsylvania, New Jersey and possibly Maryland and California, conceding the model’s unprofitability and unsustainability.

As it betrays a fresh interest in profits, competitors in grocery, retail and logistics are celebrating victories — both for the battle and for the war.

The Analysts

Bernstein’s Brandon Fletcher covers bulk and discount retail, including Target Corporation (NYSE: TGT) and Dollar Tree, Inc. (NASDAQ: DLTR).

David Vernon covers logistics, airlines and railways, including FedEx Corporation (NYSE: FDX), United Continental Holdings Inc (NYSE: UAL) and American Airlines Group Inc (NASDAQ: AAL).

The Ratings

  • Dollar General Corp. (NYSE: DG): Outperform, $88 price target
  • United Parcel Service, Inc. (NYSE: UPS): Outperform, $132 price target
  • Target: Outperform, $68 price target
  • Dollar Tree: Market Perform, $78 price target
  • Wal-Mart Stores Inc (NYSE: WMT): Market Perform, $84 price target
  • FedEx: Market Perform, $212 price target

The Thesis

Without high subscription fees or a cost-reduction model to boost margins, grocery delivery in non-urban areas is too expensive for a pure e-commerce firm to sustain, according to Bernstein.

Amazon’s pullout and implicit emphasis on profitability will lessen pricing pressure on grocery competitors both immediately and in the long term, while also justifying the role and strategy of delivery rivals, the analysts said.

Price Action

SPDR S&P Retail (ETF) (NYSE: XRT) has fallen 8 percent over the last six months, while Direxion Daily Transportation Bull 3X Shares (NYSE: TPOR) has risen 19 percent.

At the time of publication, Dollar General was down slightly at $80.22; Dollar Tree was trading at $92.81, down less than 1 percent; and Target was down 2.11% at $58.04. Wal-Mart was nearly flat at $88.74, FedEx was up slightly at $221.68 and UPS was down slightly at $113.85.

Related Links:

Following Whole Foods Acquisition, Is Amazon On Its Way To A 'Competitive Moat?'

Amazon Could Make Smaller-Scale Purchases In AI/Machine Learning, AR/VR, Cloud

Photo courtesy of Amazon.

Latest Ratings for AMZN

Nov 2020China RenaissanceUpgradesHoldBuy
Nov 2020CitigroupMaintainsBuy
Oct 2020BenchmarkMaintainsBuy

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