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Carvana Shares Soar After Analysts Upgrade Stock Forecasts

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Vivek M. Kumar
·3 min read
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Tempe, Arizona-based Carvana’s shares jumped on Friday after several equity analysts upgraded their stock forecasts on the leading used-car retailer.

Morgan Stanley upgraded their base target price of $420 from $225 with a high of $800 under the bull-case scenario and $130 under the worst-case scenario. The investment firm also gave an “Overweight” rating for Carvana‘s stock.

“We believe Carvana is uniquely positioned to serve an automotive and transportation TAM that goes far beyond the used car market, driving potentially far higher growth that is not reflected in today’s share price. Upgrade to Overweight,” said Adam Jonas, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Carvana had its target price increased by stock analysts at JMP Securities to $290 from $250. The brokerage presently has an “outperform” rating on the stock. D.A. Davidson raised the price objective to $275.

“The data in CVNA’s press release and shareholder letter was mixed as we detailed in our flash note. Unit and revenue growth were in line to better, but GPU wasn’t as strong, leading to only in line gross margins and lower EBITDA than consensus. Share data and other metrics around sourcing were better and guidance was about in line,” said Michael Baker, senior research analyst at D.A. Davidson.

“But we think the takes from the call as well as our call back paint a better picture with CVNA’s biggest issues coming from too much demand outstripping their ability to process their purchased vehicles. The good news is eventually that high-class problem will be worked through.”

A few more also upgraded their outlook. Stephens upped the stock price forecast to $250 from $225. JP Morgan increased the target price to $300 from $280. Piper Sandler raised the price objective to $302 from $260. Jefferies gave the target price of $350 with a buy rating.

CVNA announced plans to double reconditioning capacity to 1.25M units in 2022 by adding another 10 IRCs, meaning at a minimum capacity entering 2023 will be twice consensus estimates. Every long-term data point provided supports there being upside to forward consensus and confirms our view that CVNA will continue benefiting from a secular shift to e-commerce in the used car space,” said John Colantuoni, equity analyst at Jefferies.

“In terms of estimates, we are leaving 2021/22 retail units roughly unchanged, raising our whole units to account for elevated consumer purchases, and lowering our retail GPU to account for transitory headwinds in Q1. Our $350 price target remains unchanged, which represents 5x ’22 EV/Sales and is justified on a growth adjusted basis.”

Following this, Carvana shares, which soared over 160% in 2020, traded over 10% higher at $290 on Friday.

According to Tipranks, fifteen analysts who offered stock ratings for Carvana in the last three months forecast the average price in 12 months of $314.71 with a high forecast of $420.00 and a low forecast of $250.00.

The average price target represents a 7.81% increase from the last price of $291.93. From those 15 analysts, 13 rated “Buy”, two rated “Hold” and none rated “Sell”,

“We are bullish on Carvana’s growth trajectory in the used market and see scope for expansion into new retail sales, P&S and mega-fleet management service revenue. Carvana’s fully digital experience with full vertical integration (both software and physical IRC/logistics) offers a superior consumer experience that can scale profitably,” Morgan Stanley’s Jonas added.

“We believe the current share price at 1.0x EV/Sales (MS 2030 sales discounted back to 2021) is too cheap relative to our projected 35% top-line CAGR through 2025. CVNA is our top-ranked auto retailer stock.”

This article was originally posted on FX Empire