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BofA Downgrades Amazon (AMZN) Stock on Strong Dollar. What That Means.

  • Bank of America analyst Justin Post downgraded Amazon (AMZN) stock this morning from $188 to $168, maintaining a "buy" rating.
  • Post cites foreign exchange margin pressure and recession concerns as primary drivers for the lower target.
  • The U.S. dollar has been remarkably strong this year, which could be detrimental to major exporters like Amazon.
Amazon (AMZN) building at night time with logo light up on building
Source: Mike Mareen / Shutterstock.com

Bank of America just downgraded Amazon (NASDAQ:AMZN) stock to $168 from $188 ahead of the company’s pivotal earnings call later this month. Interestingly, the bank cited foreign exchange rates as a primary reason behind the reduced outlook.

This morning, analyst Justin Post released the new price target on AMZN stock, anticipating a muted July 28 report. Post believes relatively strong consumer spending will be offset by macroeconomic margin pressure. That will be lead in no small part by recent dollar strength and a potential recession later this year.

Post commented on the convoluted conditions surrounding the downgrade:

“[W]e are lowering 2022 & 2023 estimates to reflect recent FX pressure and BofA outlook for mild 4Q recession. Ex-FX, we expect meet/beat 2Q, as BAC aggregated credit and debit card data points to 2pts of q/q US eCommerce growth, in-line with estimates […] FX is a big 3Q headwind […] but the good news is eCommerce industry comps ease materially going forward.”

Despite the downgrade, Post maintains a “buy” rating on AMZN stock.

How Does a Strong Dollar Affect AMZN Stock?

It may sound strange that a strong dollar could injure Amazon’s bottom line, but it’s not exactly unprecedented. When the dollar is strong, consumers benefit from functionally cheaper import goods and lower foreign travel costs. However, exporters and companies like Amazon — dependent on foreign markets — get the short end of the stick.

When the dollar is strong, exports companies have two choices. They can either raise the price of their goods — reflecting the foreign currency appreciation post-conversion — or accept lower margins on internationally sold goods. In many ways, a stronger dollar is a lose-lose scenario for names like Amazon. Either it passes the rate appreciation to customers via higher prices, likely curbing sales growth, or it keeps prices stable and loses profit in the process.

This year, the U.S. dollar has continued to roar higher, climbing more than 13% since January. Largely bolstered by the Federal Reserve’s hawkish monetary policy and disproportionately high energy costs around the world, the dollar is trending around a two-decade high. While enjoyers of import goods may be celebrating effectively discounted wine and oils, companies like Amazon mostly see the downsides. Whether Post’s AMZN stock prediction proves accurate, however, remains to be seen.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2022/07/bofa-downgrades-amazon-amzn-stock-on-strong-dollar-what-that-means/.

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