On Thursday, DA Davidson adjusted its price target on Carvana (NYSE:CVNA), the online car retailer, to $240, marking a substantial increase from the previous $155 target while keeping a Neutral rating on the stock. The firm's analyst cited Carvana's significant outperformance of consensus forecasts on numerous financial metrics as the basis for the adjustment.
Carvana's stock has experienced a remarkable recovery, having regained two-thirds of its value following a steep decline from its peak price of $370 in August 2021 to a low of $3 in December 2022. This recovery includes a year-to-date surge of 370%. Carvana's strong financial results have been attributed to considerable market share gains, with retail unit growth accelerating to 34%, in stark contrast to a 6% decline among competitors, many of whom saw deceleration.
The company's earnings have nearly doubled consensus expectations, driven by increased efficiency and the benefits of scaling operations. Carvana's growth, profitability per unit, and overall EBITDA margins have surpassed industry averages. Furthermore, the company's guidance indicates that this trend of outperformance is expected to persist as it continues to scale and capitalize on prior infrastructure investments.
Despite the positive performance, DA Davidson maintains a Neutral stance on Carvana's stock due to the valuation being significantly higher than industry norms, even when factoring in the improved profit outlook. Additionally, the analyst noted that most of the short interest in the stock has been covered.
The new price target of $240 is based on a 25x EBITDA multiple applied to the firm's increased 2026 EBITDA estimate of $2,176 million. This estimate assumes an annual growth rate of 12% in 2025 and 2026, along with a 13.1% EBITDA margin. These projections reflect the analyst's expectations of Carvana's financial trajectory over the next few years.
In other recent news, Carvana's third-quarter performance has caught the attention of several analyst firms. BTIG raised Carvana's price target to $295, highlighting the company's impressive third-quarter results, with unit sales reaching 108,651 and total gross profit per unit (GPU) of $7,685. The firm also noted Carvana's decision to focus more on its retail marketplace operation. Furthermore, Carvana's guidance for full-year EBITDA was set to "significantly above" the previous range of $1.0 billion to $1.2 billion.
Evercore ISI, Wells Fargo, and BofA Securities also increased their price targets for Carvana, citing factors such as a positive third-quarter earnings report, improved fundamentals, and long-term growth potential. Despite these positive adjustments, Citi maintains a neutral stance on Carvana. Stephens reaffirmed its Overweight rating, maintaining its $190 price target.
These recent developments follow Carvana's announcement of reaching a milestone of four million online vehicle transactions since its inception. The company's management projects a year-over-year growth rate of over 25% for third-quarter unit sales and EBITDA for 2024 between $1 billion and $1.2 billion, surpassing the consensus estimate of $890 million.
InvestingPro Insights
Carvana's remarkable recovery and financial performance, as highlighted in the article, are further supported by recent data from InvestingPro. The company's stock has shown an impressive 667.81% return over the past year, aligning with the article's mention of a 370% year-to-date surge. This strong performance is reflected in Carvana trading near its 52-week high, with the current price at 96.88% of that peak.
InvestingPro data reveals that Carvana's revenue for the last twelve months as of Q2 2024 stands at $11.67 billion, with a gross profit margin of 18.77%. The company's adjusted operating income margin of 3.48% for the same period indicates improved efficiency, supporting the article's discussion of increased profitability.
InvestingPro Tips suggest that Carvana is trading at a low P/E ratio relative to near-term earnings growth, which could be attractive to investors looking for potential value. However, it's also noted that the stock is trading at high EBIT and EBITDA valuation multiples, aligning with DA Davidson's cautious stance on valuation.
For investors seeking a more comprehensive analysis, InvestingPro offers 19 additional tips for Carvana, providing a deeper understanding of the company's financial health and market position.
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