On Thursday, Morgan Stanley maintained its Underweight rating on Carvana Co. (NYSE:CVNA) but increased the price target to $110 from $75. The adjustment reflects the firm's recognition of the company's recent improvements and growth potential. The analyst praised Carvana for its operational turnaround and strong operating leverage, which have positioned the company for renewed growth.
Despite the upward revision, the new price target still suggests caution, as it remains significantly below Carvana's after-hours trading price of $150 per share. The firm's analysis indicates that the stock is currently trading at 27 times Morgan Stanley's revised forecast for the company's fiscal year 2025 EBITDA.
While Morgan Stanley acknowledges a bullish scenario where Carvana could see further upside, with a potential $220 price target based on a 25% compound annual growth rate in revenue and a 13% margin through fiscal year 2031, the base case of $110 does not align closely with the current share price. The firm's stance is influenced by broader concerns, including signs of consumer fatigue in the United States auto market, as well as increasing 60-day delinquencies in auto credit.
The firm's analysis suggests that even though Carvana has made significant strides in its business operations, the current market conditions and consumer credit issues present challenges that warrant a cautious outlook on the stock's valuation. This perspective is framed within the context of the overall auto industry and financial market trends, providing investors with a tempered expectation for Carvana's near-term performance.
In other recent news, Carvana Co. has been the focus of several analyst updates, with Morgan Stanley maintaining its Underweight rating but increasing the price target from $75 to $110.
Other firms, including Needham, RBC Capital Markets, and JPMorgan, have also raised their price targets, reflecting the company's strong market position and recent financial improvements. The company's recent earnings report revealed a net income of $48 million for the second quarter, a significant turnaround from the previous year's net loss.
Carvana's projected adjusted EBITDA for 2024 is expected to range between $1 billion and $1.2 billion, surpassing analyst expectations. Despite these positive developments, analysts caution about potential challenges such as seasonal trends and issues in the company's debt reduction plan.
InvestingPro Insights
Recent data from InvestingPro shows that Carvana Co. (NYSE:CVNA) is trading at a P/E ratio of 23.77, which is low relative to its near-term earnings growth. However, the company's P/E ratio adjusted for the last twelve months as of Q1 2024 stands at -35.96, reflecting expectations of a downturn in net income this year. The price/book ratio as of the same period is notably high at 94.26, indicating a premium valuation compared to the company's book value.
Despite the operational improvements highlighted by Morgan Stanley, Carvana's gross profit margins remain weak at 17.58% for the last twelve months as of Q1 2024. This could be a contributing factor to the cautious stance by analysts, as indicated by the InvestingPro Tip that analysts do not anticipate the company will be profitable this year. On the positive side, the company has demonstrated a strong return over the last three months, with a price total return of 52.98%.
Investors looking to delve deeper into Carvana's financial health and market performance can find additional analysis and InvestingPro Tips on the company's profile at InvestingPro. With a total of 17 more tips available, including insights into profitability, debt levels, and stock price volatility, InvestingPro provides a comprehensive resource for those seeking an informed investment decision.
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