Carvana Stock: Why One Analyst Sees Big Upside After Earnings

Karvana CVNA shares soared Thursday after the used car retailer beat expectations for third-quarter revenue and profit and gave encouraging guidance for the fourth quarter.

For the three months ended Sept. 30, Carvana’s revenue rose 32% year over year to $3.7 billion, driven by a 34% increase in the number of retail units sold to 108,651. The company also reported that its gross profit per unit increased by 20.2% to $7685.

Meanwhile, its earnings per share (EPS) fell 82.2% year-on-year to 64 cents. The sharp drop in earnings compared to the previous year is the result of an increase in third-quarter 2023 earnings from “debt reduction gains.”

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“The third quarter was another exceptional quarter for Carvana. We delivered record results across virtually every key financial measure,” Carvana CEO Ernie Garcia said in a statement. “Most importantly, our customer experience, our financial performance and our growth rate continue to set us apart from the rest in our industry. We are today’s most profitable and fastest-growing automotive retailer, and we still have a long way to go. “

The results easily exceeded analysts’ expectations. Wall Street was expecting revenue of $3.45 billion and earnings of 25 cents per share, according to CNBC.

In the fourth quarter, Carvana said it expects to achieve sequential year-over-year growth in retail unit sales. For the full year, the company expects to achieve adjusted EBITDA that will “significantly exceed” the high end of its previously guidance range of $1 billion to $1.2 billion for the full year. EBITDA is earnings before interest, taxes, depreciation and amortization.

“Our third quarter results position us to exit 2024 strongly,” Carvana said.

Is Carvana a Buy, Sell or Hold?

Even though Carvana shares have more than quadrupled in a year, much of Wall Street remains on the sidelines when it comes to consumer discretionary stocks.

According to S&P Global Market IntelligenceThe average analyst price target for CVNA is $220.35, which represents a discount to current levels. Additionally, the consensus recommendation is Hold.

But bulls can be found. Financial services firm Needham, for example, has a Buy rating on large-cap stocks and raised its price target to $300 from $200 after earnings.

“CVNA is leading the assault on traditional automotive retail in the U.S. with a digital, data-driven, capital-efficient and vertical approach that we believe delivers a more compelling shopping experience and should lead to significant value creation over the next several years. ” says Needham analyst Chris Pearce.

The analyst adds that Carvana’s differentiated offering positions it to be a “long-term winner” and the stock is poised to “demonstrate sustainable stock growth given its superior consumer offering and industry fragmentation.”

Carvana Stock: Why One Analyst Sees Big Upside After Earnings

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