Amazon's Ambitious October Spooks Stocks Standing in Its Path

The looming threat of Amazon.com Inc. siphoned billions in market cap from Under Armour Inc. to FedEx Corp. to Walgreens Boots Alliance Inc. — more than $30 billion combined — in October. Companies are gearing up to face Bezos’s behemoth heading into the holiday season, with some appearing ready to get creative as the state of their industries is shaken.

CVS Health Corp., for example, lost about $13 billion this month, shattered largely by reports of Amazon’s plans to enter the pharmacy benefits management space. The subsequent response: let’s buy health insurance! In what Wall Street is saying would be a “revolutionary defense,” CVS is reportedly contemplating an acquisition of Aetna Inc., a health insurance company, though the reality of whether that deal may come to fruition is cloudy.

Under Armour and FedEx are also in the eye of Amazon’s hurricane. Sales are already souring for the athletic-wear maker, and Amazon hasn’t even begun its private-label manufacturing. FedEx, as it does every year, has the holiday season to live up to.

Sportswear to Keep Slumping

Amazon is said to be enlisting Taiwanese suppliers of Lululemon Athletica Inc. and Under Armour as part of a foray into private-label sportswear. That’s bad news for Under Armour, which is already in trouble, reporting a sales decline in the third quarter for the first time ever and cutting its year views. Piper Jaffray said its fourth quarter appears to be at risk after Amazon gained 89% of total dollar growth in North American softlines business — i.e., clothing, shoes, etc — year-to-date.

“Amazon remains a significant threat for the traditional channel — particularly as more brands work to test or partner with them,” Piper Jaffray analyst Erinn E. Murphy said. And it’s not just Amazon driving up the competition, with Nike Inc. increasing investments in yoga pants and sports bras.

Health Care’s Bold Plans

“Front store sales are being rapidly eroded by Amazon, while the core Pharmacy business is poised for disruption by Amazon,” Leerink’s Ana Gupte said, in a succinct wrap up of the risks for pharmacy chains.

CVS Health doesn’t appear to be waiting around to see what happens. It would be making a bold move if it goes ahead with a deal to buy Aetna, Citibank said. The deal could change how drugs are paid for, shaking up the system and lumping pharmacy benefits into medical coverage plans which signals the end of standalone pharmacies. Aetna’s strong earnings today are evidence of CVS’s interest, though the insurer didn’t comment directly on the merger.

It’s a natural defense against the potential Amazon threat, said Cowen, but the company might be better off effecting changes on its own and partnering with multiple health providers. Either way, action seems to be called for.

Delivering Bad News

While there may be some hesitation to let strangers in your home, Amazon’s is proposing to take packages past your front door and right into your living room with a new home security camera and smartlock called Amazon Key. Fedex and United Parcel Services Inc. are shuddering with UPS reporting profit that missed estimates last week.

In the longer run, since Amazon most likely gets a beneficial price from existing parcel carriers given its volumes, Amazon Logistics’ per-unit economics could be much lower than what small shippers today pay to UPS and FDX. This could hand Amazon a meaningful cost advantage if they choose to open up their network to third parties, Morgan Stanley analyst Ravi Shanker said.