Carvana Shares Jump Over 30% as Company Eyes Record Q3 Sales and Revenue

A leading used-car retailer Carvana Co’s shares jumped over 30% on Tuesday after the company said that they aim to achieve records in performance across several important metrics, including sales and revenue, in the third quarter, following a recovery in auto sales in the United States.

Following this release, Carvana shares climbed more than 30% to $229.49 on Tuesday; the stock is up over 150% so far this year.

Carvana also said it plans to offer up to $1 billion in aggregate principal amount of senior notes, due in 2025 and 2028, Reuters reported.

Executive comments

“The momentum that we saw in the second quarter accelerated into the third, leading to record performance for Carvana in metrics that demonstrate strong progress both in growth and towards profitability,” said Ernie Garcia, Carvana founder and CEO.

“Hitting these records while continuing to provide the exceptional customer experiences we’ve become known for and adjusting to all the change that 2020 has brought us speaks to the quality of people we have at Carvana and to their tireless focus on our customers.”

Carvana stock forecast

Sixteen analysts forecast the average price in 12 months at $203.93 with a high forecast of $250.00 and a low forecast of $105.00. The average price target represents a -9.73% decrease from the last price of $225.91. From those 16 equity analysts, 12 rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

JP Morgan establishes December 2021 price target of $235 vs December 2020 price target of $190; Wedbush raised target price to $190 from $170 and Goldman Sachs upgraded their rating to buy; raising the target price to $205 from $178.

Robert W. Baird raised their target price on shares of Carvana from $148 to $195 in August. BofA Securities cut shares of Carvana from a “buy” rating to a “neutral” rating and raised their target price for the stock from $150 to $230. Piper Sandler reduced their target price on shares of Carvana from $211 to $209 and set an “overweight” rating.

Analyst views

“We believe that, as growth starts to slow, and the company is still not profitable, there will be a transition away from growth investors, and how investors think about the valuation will change. Our estimate for 2023 Retail Units Sold is ~25% lower than Consensus: (1) with US population coverage ~73%, the opportunity for market expansion is decreasing, and (2) while we expect the cohort curves to demonstrate continued improvement, there is limited room for improvement for Retail Units Sold / Market, as less mature & smaller markets are added to the footprint,” said Adam Jonas, equity analyst at Morgan Stanley, who has a price target of $232 in a bull-case scenario and $23 in the best case.

“We are modelling positive EBITDA by 2022 & positive FCF by 2023, but we remain concerned about the ability to leverage SG&A,” Jonas added.

Upside and Downside Risks

Upside: 1) Constructive third-party data on retail unit sales. 2) Gains from securitization sales SG&A leverage. 3) Additional products and services – highlighted by Morgan Stanley.

Downside: 1) 2020 & 2021 guidance. 2) Capital raise. 3) Insider selling. 3) U.S. auto and auto credit cycle. 4) Competition.

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