Carvana Stock is the 'Best Story' in Autos. One Thing Could Slow it Down.

Dow Jones
Yesterday

Carvana's stock rose Friday as analysts have grown increasingly bullish ahead of the used-car retailer's third-quarter earnings. Some caution remained, however.

Shares of Carvana rose 4.3% to $64.75 on Friday. CarMax fell 1.2%, AutoNation added 1%, and Group 1 Automotive dropped 1.1%. Carvana stock has fallen 33% since hitting an all-time closing high of $95.69 on Jan. 22, according to Dow Jones Market Data.

J.P. Morgan analysts wrote Friday that Carvana stock "remains [the] best story in auto ecosystem," citing their raised forecast of 40% unit growth from 48%, and Carvana's higher profitability than its peers.

The analysts reiterated their Overweight rating on the shares and their price target of $100.

Carvana's business could face near-term pressure from higher interest rates, analysts said, as they increase the company's funding costs and reduce the profits it makes when it sells auto loans to investors.

The company could offset this by charging rates, but the analysts noted that doing this too quickly could hurt demand.

Oppenheimer was similarly optimistic. Analysts wrote Wednesday that Carvana's business is "humming" and has moved beyond its restructuring issues. Wall Street forecasts don't fully capture how much Carvana could grow and earn in the near and long term, analysts said.

Carvana will report third-quarter earnings on Oct. 28. Consensus calls for earnings of 44 cents a share and $7.6 billion in revenue, according to FactSet.

The company forecast a "sequential increase" in retail units sold for the third quarter following its second-quarter report in July. It projected adjusted Ebitda of $2.7 billion to $3 billion for the full year, with the higher end falling just above Wall Street's estimates of $2.95 billion.

 

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