Market Overview

A 'Layer Of Protection' From Amazon Is A Dividing Line In Retail

Share:
A 'Layer Of Protection' From Amazon Is A Dividing Line In Retail
Related AMZN
Q3 13F Roundup: How Buffett, Einhorn, Ackman And Others Adjusted Their Portfolio
BTIG Research: Etsy Is Online Leader In Handmade, Artisanal Goods
Marin Software: A First Whiff Of Spring? (Seeking Alpha)
Related XRT
Some Not-So-Scary Halloween Spending Statistics
10 Of The Largest Retail Bankruptcies Since 2016
Inside the retail sales report (Seeking Alpha)

Retailers have shown greater capital discipline in the hopes of re-invigorating their businesses, but investors must take a cautious stance on the sector, according to Morgan Stanley.  

The Analysts

A team of Morgan Stanley analysts led by Simeon Gutman and Kimberly Greenberger reviewed the retail sector.

The Thesis

The retail sector continues to show signs of struggling with one of the most telling metrics, the analysts said in a Thursday report: EBIT margins.

Since 2012, retailer EBIT margins have compressed 230 basis points on average due to the following reasons, Gutman and Greenberger said: 

  • E-commerce platforms stealing "significant" market share.
  • Increasing price transparency.
  • A sales shift toward online retail.
  • Incremental costs associated with free shipping offers.

Returns on invested capital fell 150 basis points over the same time period, as many companies took advantage of stock buyback programs and slowed their store growth, the analysts said. A closer look at different retail subcategories shows stronger results from companies with some insulation from e-commerce, according to Morgan Stanley. 

Those with a "layer of protection" from Amazon.com, Inc. (NASDAQ: AMZN) — such as Home Depot Inc (NYSE: HD) — expanded their EBIT margins by 150 basis points as a group over the years, with a 420-basis point expansion in ROIC.

On the other hand, retailers that more closely compete with Amazon, such as Pier 1 Imports Inc (NYSE: PIR), have shown an EBIT margin erosion of 420 basis points on average and 370 basis points of ROIC contraction, the analysts said. 

Related Links:

Morgan Stanley Turns 'Incrementally Cautious' On Macy's After 60% Gain

Credit Suisse Goes Shopping For Discount Retail Winners

Latest Ratings for AMZN

DateFirmActionFromTo
Oct 2018JefferiesMaintainsBuyBuy
Oct 2018Bank of AmericaMaintainsBuyBuy
Oct 2018BarclaysMaintainsOverweightOverweight

View More Analyst Ratings for AMZN
View the Latest Analyst Ratings

Posted-In: Amazon e-commerce retailAnalyst Color Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (AMZN + HD)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
ACBIKeefe Bruyette & WoodsUpgrades21.0
COTYBMO CapitalUpgrades12.0
ECCOppenheimerDowngrades0.0
VYGRRaymond JamesUpgrades0.0
ATNXJP MorganUpgrades15.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

DA Davidson: Louisiana-Pacific 'Compelling' Despite Pricing Headwinds

Bank Of America Says It Underestimated REITs' Execution, Demand