🎈 Up Big Today: Find today's biggest gainers with our free screenerTry Stock Screener

Carvana estimates are too optimistic, Jefferies says in downgrade

Published 31-07-2023, 04:48 pm
© Reuters
CVNA
-

Shares of Carvana (NYSE:CVNA) fell fractionally in pre-open trading Monday after analysts at Jefferies downgraded shares to a sell-equivalent rating, saying the company is not out of the woods yet and Wall Street estimates are too high.

The analysts cut their rating on the stock to Underperform from Hold and slashed the price target from $55 to $30 per share, suggesting nearly 32% downside from Friday's closing price.

"Consensus appears to overestimate the sustainability of recently elevated profitability, which we believe benefited from transitory tailwinds that will abate in the coming quarters," the analysts commented. "Our revised '24 GPU/EBITDA are ~10%/45% below the Street, despite us assuming per unit economics remain well above prepandemic levels."

They noted that temporary tailwinds have boosted current profitability with record-high Retail and Other Gross Profit per Unit (GPU) in 2Q23, double the levels from last year and pre-pandemic (vs. 2Q22/2Q19). However, overly optimistic street estimates for '24/'25 incorporate inflated total GPU, about 30% (or ~$1,100/unit) above the 5-year average and ~75% (or ~$2,100/unit) above pre-pandemic levels ('19). These transitory tailwinds, such as wider wholesale/retail spreads and loan sale timing, are expected to normalize in 2H23. Anticipated Unit growth next year might negatively impact per unit economics.

The firm's estimates show Retail/Other GPU moderating by ~$100/unit in '24 but remaining ~$500/unit above pre-pandemic ('19) levels due to some structural improvements, resulting in total GPU falling ~10% below consensus. Additionally, SG&A/Unit plateaued for three quarters, indicating limited per unit expense improvements until growth accelerates, leading to their '24 EBITDA estimate falling ~45% below consensus.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.