Carvana rallies 25% on earnings beat, price target increases
2min read Carvana (CVNA) delivered a robust Q3 report, with adjusted EPS of $0.64, significantly outpacing the consensus of $0.30, on revenue of $3.65 billion, representing a year-over-year increase of nearly 32%. Total gross profit per unit (GPU) reached $7,427, and the non-GAAP GPU stood at $7,685, both seeing strong improvements driven by efficiencies in reconditioning and inventory management. Following these results, Carvana's stock surged 25% to all-time highs, reflecting not only strong financial performance but also the potential for a short squeeze, given the high short interest of 12% and a low float of 112 million shares.
Analysts are optimistic about Carvana's performance and outlook, noting that Q4 retail unit growth is expected to accelerate, alongside an upgraded FY24 adjusted EBITDA guidance to significantly exceed the previous range of $1.0 to $1.2 billion. Needham raised its price target to $300, supported by increased retail unit estimates and a conservative approach to GPU, expecting Carvana to capture 1.75% of the used vehicle market by 2027. This positive outlook stems from Carvana’s strong cost management, which held operating expenses steady and contributed to a 30% beat in adjusted EBITDA.
BTIG analysts were equally bullish, raising their price target from $188 to $295, attributing Carvana’s advantage to its unique capacity and scale to work with large commercial sellers in the retail vehicle space, which many traditional competitors lack. The firm highlighted the continued expansion in gross profit per unit and viewed the company’s differentiated model as highly valuable in the used vehicle market, which they expect to support ongoing gains in Carvana’s market share. The updated Q4 EBITDA estimate from BTIG now stands at $316 million, well above the consensus, signaling confidence in Carvana’s ability to sustain margin growth.
Wells Fargo, which increased its price target from $250 to $300, noted that Carvana’s cost-saving measures, particularly in reconditioning and operational efficiency, position it for continued growth. With gross profit per unit at record levels and debt concerns easing due to the improved balance sheet, Wells sees further potential for upside. The bank also emphasized the resilience of Carvana’s model in the face of macroeconomic challenges, asserting that the company’s broad-based growth potential makes it well-suited for long-term expansion in the used car market.
While analysts remain impressed by Carvana’s results and prospects, some caution over valuation has emerged given the stock’s significant run-up this year, now up over 400% year-to-date. BAML, which raised its price target to $252, echoed concerns over elevated valuation levels, but emphasized that Carvana’s consistent GPU growth and efficient business model support its current price trajectory. They note, however, that shorting the stock is not advisable due to the potential for additional short squeezes, which could amplify price volatility.
Despite valuation concerns, Carvana’s future prospects appear bright, as analysts cite a large total addressable market (TAM) in the used car space and Carvana’s unique capacity to handle cost controls, such as reconditioning efficiencies and shipping fees. As its cost of revenue is largely variable, analysts believe Carvana’s GPU gains are likely to be sustainable, with limited downside risks. Overall, Carvana’s positive Q3 results have not only validated its operational model but also bolstered confidence that the company is on a steady path toward long-term profitability.
In summary, Carvana’s Q3 earnings have reinvigorated bullish sentiment, with analysts raising price targets and EBITDA projections while cautioning on valuation levels in light of the strong stock performance. The company’s solid execution, operational efficiency, and expanded market reach keep it well-positioned for continued growth, with investors encouraged by the strong Q4 guidance and expanded GPU margins that are helping alleviate previous balance sheet concerns.
