Carvana’s Price Target Raised to $215 with Equal-weight Rating, $250 in Best Case: Morgan Stanley

Carvana Co’s price target was raised to $215 from $23 with ‘Equal-weight’ stock rating, according to Morgan Stanley equity analyst Adam Jonas, who said that the leading used-car retailer is proving it can be a digital compounder and profitable.

The leading e-commerce platform for buying and selling used cars said last week 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. Carvana also said it plans to offer up to $1 billion in aggregate principal amount of senior notes, due in 2025 and 2028.

Carvana announced on Thursday that it will report its third-quarter 2020 financial results for the period ended September 30, 2020, following the close of market on Thursday, October 29, 2020.

“Carvana (CVNA) is proving the skeptics (ourselves included) very wrong. While we have long been fans of the concept, we have harboured doubts overused market fundamentals, access to capital and ability to scale profitably. In our view, CVNA is way more than a flash in the pan. In many ways, it represents the future of the used retail business and potentially other related verticals (new retail, after-sales/service, mega-fleet management) over time,” Morgan Stanley’s Adam Jonas said.

“We introduce a proprietary US used car TAM model which gives CVNA 5% retail share (3.6% wholesale) by 2030. Our price target moves to $215 from $23 as we mark to market for recent guidance and make major increases in our long-term growth assumptions. We model a 28% top-line CAGR to 2030 (29% gross profit CAGR) which takes our 10-year DCF value to near the current share price. Each 1% of US retail used car market share by 2030 is worth approximately $35/share to CVNA on our calculations. A 12-fold increase in revenues by end of decade justifies an Equal-weight. We think the market got this one very right.”

However, Carvana’s shares closed 6.46% lower at $222.70 on Friday; however, the stock is up over 140% so far this year.

Several other equity analysts have also updated their stock outlook. Carvana had its target price upped by Piper Sandler to $265 from $209. They currently have an overweight rating on the stock. Stephens upped their price target to $207 from $165. B.Riley Securit lowered to a neutral rating from a buy. At last, Wells Fargo & Company upped their price target to $200 from $175.00 and gave the company an overweight rating.

Eighteen analysts forecast the average price in 12 months at $220.71 with a high forecast of $265.00 and a low forecast of $105.00. The average price target represents a -0.89% decrease from the last price of $222.70. From those 18 equity analysts, 11 rated ‘Buy’, seven rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“We are bullish on Carvana’s growth trajectory and we forecast the company taking a meaningful market share of the used car market (4.8% retail and 3.6% wholesale) by 2030. We believe that while CVNA has carved out a unique niche in the market and has accelerated online buying trends while also creating a brand that resonates with consumers, we expect competition from key players to accelerate into the future,” Morgan Stanley’s Jonas said.

“In 2030, we forecast 2.3mm retail units at $1,700 GPU and 1.8mm wholesale units at $743 GPU. We are EBITDA +ve by 2022 & FCF +ve by 2023, but we question the multiple that CVNA trades at (~37x 2024 EBITDA) and capital requirements which lead us to EW.”

Check out FX Empire’s earnings calendar