On Monday (NASDAQ:MNDY), RBC Capital Markets updated its outlook on CarGurus Inc. (NASDAQ: NASDAQ:CARG) shares, increasing the price target to $42 from the previous $30, while retaining an Outperform rating on the stock. The adjustment follows a robust third-quarter report from the online automotive marketplace.
The company's core marketplace has continued to demonstrate remarkable consistency, according to the firm. Additionally, there are indications of progress in CarOffer, albeit modest. A positive shift in the Marketplace mix is contributing to higher margins, and CarGurus is seeing an acceleration in capital returns. These factors have led RBC Capital to raise its estimates and price target for CarGurus.
The analyst noted that while the Marketplace might experience a slowdown in the following quarters, the combination of higher profitability and CarOffer approaching a performance trough justifies a higher valuation multiple. CarGurus is recognized as a leading player in the used car media sector, and the firm recommends continuing to hold the stock.
CarGurus has been navigating the shifts in the automotive industry, focusing on its core strengths and exploring avenues for improvement. The company's strategic moves appear to be paying off, as evidenced by the positive feedback from RBC Capital.
The increased price target and sustained Outperform rating reflect confidence in CarGurus' business model and its potential for continued growth despite the anticipated market deceleration. CarGurus' third-quarter performance and strategic initiatives have positioned it favorably in the eyes of investors and market analysts alike.
In other recent news, CarGurus reported a robust third-quarter performance in 2024, with a 5% year-over-year increase in consolidated revenue to $231 million. The online automotive marketplace also experienced a notable 15% growth in marketplace revenue, hitting $204 million. The non-GAAP consolidated adjusted EBITDA saw a significant rise of 33% year-over-year, indicating strong financial health.
The company's international business, especially in Canada, saw a 23% revenue increase, contributing to the overall growth. CarGurus also announced a $200 million share repurchase program, set to commence in January 2025. Despite expecting challenging results in 2025, CarGurus remains optimistic about its growth drivers and product offerings.
Analysts from the earnings call highlighted the company's successful launch of new products, such as Digital Deal, and its focus on enhancing product offerings and improving lead quality. CarGurus anticipates a fourth-quarter revenue between $219 million and $239 million, with marketplace revenue growth expected to be between 14% and 17% year-over-year.
These recent developments reflect CarGurus' commitment to growth and strategic expansion.
InvestingPro Insights
CarGurus' recent performance aligns with RBC Capital's positive outlook, as evidenced by several key metrics from InvestingPro. The company's stock has shown impressive momentum, with a 43.72% price total return over the past six months and an 82.35% return over the last year. This strong performance supports RBC's decision to raise the price target.
InvestingPro Tips highlight that CarGurus holds more cash than debt on its balance sheet, indicating a solid financial position. This financial stability could be a contributing factor to the company's ability to navigate market challenges and pursue growth opportunities, as noted in the analyst's report.
Additionally, InvestingPro Data shows that CarGurus has a high gross profit margin of 80.76% for the last twelve months as of Q3 2024, reflecting the company's efficiency in its core operations. This aligns with RBC's observation of the company's consistent performance in its core marketplace.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for CarGurus, providing a deeper understanding of the company's financial health and market position.
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