FAST FIVE: Amazon Surprises Market With Monster Bond Offering Just As Morgan Stanley Hikes Price Target To $2,800

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The initial price talk according to Bloomberg was as follows: USD 3Y: +40 Area USD 5Y: +65 Area USD 7Y: +85 Area USD 10Y: +105 Area USD 30Y: +130 Area USD 40Y: +150 Area As a reminder, last week we first pointed out that less than 5 full months into the year, IG issuance had surpassed a record $1 trillion, a number which AMZN will push well toward $1.1 trillion after the offering closes today.

This is how analyst Brian Nowak justified his latest upgrade: E-commerce: Shelter-In Hobby #1: 2020 is setting up to be an e-commerce inflection year as the combination of shelter-in place, lower spend on experiences (dining out, bars, travel, etc) and gov't stimulus have driven dollars online.

While the world is now re-opening, we expect these buckets of available dollars (and the structural e-commerce behavior changes above) to remain e-commerce tailwinds…as we expect adjusted retail and travel spend to decline an aggregate of 18% in 2H:20…and for 3,000+ retail stores to close this year.

…As We Now See E-commerce Growing ~25% in 2020…Even if the Consumer Weakens in 2H: We believe this impact of behavioral change and more consumer dollars to be grabbed is large…as consider that even if e-commerce captures only 4% of these foregone consumer dollars in 2H (down from 12% in April from an assumed weaker consumer, no stimulus checks, and gradual reopenings) it would imply e-commerce still grows 21% in 2H and 25% in 2020.

Visually, this is how the $2,800 price target is hit on a sum of the parts basis: And the resulting valuation: AMZN historically trades at an average of ~20X NTM EBITDA, and MS' SoTP implies ~19x '21 EBITDA, a 4% discount to the 2 year average.

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