Amazon illustrates one challenge for Zebra's stock, Morgan Stanley cautions

By Emily Bary

Morgan Stanley is worried about the trajectory for e-commerce investments

A more "extended" recovery for the consumer and retail markets could mean challenges for Zebra Technologies Corp. shares, according to Morgan Stanley.

Analyst Meta Marshall downgraded shares of Zebra (ZBRA), which makes mobile computers, barcode scanners, device readers and other technologies for the retail industry, to underweight from equal weight in a Wednesday note to clients.

"Weaker consumer data points, inventory digestion and more secular headwinds around capacity absorption post COVID e-commerce overbuild meaningfully [lower] our expectations of ZBRA's run-rate earnings power over at least the next 12-24 months, causing challenges in maintaining current valuation," Marshall said in a note to clients.

Marshall is worried that Zebra's customers will have to "sweat assets for longer," meaning they will "postpone new large investments."

See also: Zebra Technologies' stock rocked after revenue outlook slashed amid 'significant' drop in demand

She's further concerned that a "reset downward to e-commerce investments should continue to persist over the coming years as customers are forced to absorb capacity built during the pandemic," a trend Amazon.com Inc. (AMZN) is expected to see especially. Admittedly, other retailers including Walmart Inc. (WMT) and Kroger Co. (KR) likely are planning to make incremental investments in warehousing and automation.

Marshall calls the stock's current valuation "stretched" as she lowered her price target to $220 from $260. The stock fell more than 6% Wednesday, and it's down 17% over the past 12 months.

Read: Here's Amazon's path to a $200 stock price, according to one bull

In Marshall's view, Zebra's stock continues to hold long-term potential given the opportunities that exist around the digitization of the retail, manufacturing, logistics and transportation sector, but the short-run challenges could be "more meaningful than currently contemplated."

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-Emily Bary

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09-20-23 1601ET

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