Morgan Stanley is even more bullish about Amazon's investment in one-day shipping as it raises its price target: 'This build phase shall too pass'

• Amazon's investment in one-day shipping is likely going to result in higher long-term profits, despite the initial costs to build it out, Morgan Stanley wrote in a note Thursday.
• In the note, Morgan Stanley raised Amazon's operating profit estimates for 2021 and its price target to $2,200 per share.
• The note is the latest in a string of bullish analyst notes about Amazon's one-day shipping initiative.
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Amazon is spending billions of dollars in making one-day shipping the default for its Prime members. Morgan Stanley is convinced the investment will pay off in a big way.

In a note published Thursday, Morgan Stanley analysts wrote that while investors will be disappointed by the near-term hit on profits, Amazon's investment in faster shipping is expected to deliver "materially higher than expected profitability in 2021 and beyond," as it leads to more frequent and a wider group of shoppers on its site.

The note said that it is raising Amazon's operating profit estimate by 8%, or $2 billion, for 2021, and its price target by $100 to $2,200 per share - adding that "this build phase too shall pass" for Amazon.

"We see one-day shipping deepening Amazon's moats, leading to larger share gains/profits," the note said.

The note is the latest in a string of analyst forecasts that are bullish about Amazon's investment in one-day shipping. Since Amazon announced plans to spend over $3 billion on shortening delivery time last year, a number of Wall Street analysts wrote favorable notes predicting the investment would result in higher growth and more frequent shoppers for the e-commerce site. Amazon disclosed in its most recent earnings report that people bought more products on its site after rolling out one-day shipping.

Morgan Stanley also estimates that roughly 60% of all products on Amazon will become eligible for one-day shipping in 2020, up from the current level of 40%. That will lead to more products sold on its site, and a 15% growth rate in the number of products sold worldwide through the end of 2020, the note said.

More importantly, Morgan Stanley said it would cost less for Amazon to roll out one-day shipping to its overseas marketplaces than it did in the US. That's because international markets already have a lot of the delivery infrastructure built out to make one-day shipping available, unlike in the US where it's relatively new, it said.

"The logistics networks are more in place [in international markets] for one-day which is important as it speaks to how the incremental international one-day investment is likely to be materially smaller than in the US," the note said.