On Wednesday, Carvana Co. (NYSE:CVNA) received an optimistic update from Citi, as the firm's analysts upgraded the company's stock rating from Neutral to Buy and increased the price target to $277 from the previous $195.
The adjustment reflects Citi's confidence in Carvana's ability to scale up its inventory in response to growing consumer demand, and to do so with greater efficiency.
Citis upgrade is anchored on five principal observations. Firstly, it notes that an improvement in new-vehicle supply is likely to spur used vehicle demand. Secondly, Carvana is expanding its inventory to adequately meet this demand. Thirdly, the analysts point to a strengthening in retail unit sales growth, with proprietary website tracking suggesting that fourth-quarter sales could surpass consensus estimates by approximately 7%. Additionally, Citi highlights the potential for sustainable improvements in Retail Gross Profit per Unit (GPU). Lastly, the firm believes that organizational changes initiated in 2022 have positioned Carvana to operate more profitably across various aspects of its business.
The analyst's commentary also addresses a recent short report on Carvana's shares, suggesting that, in light of the company's organizational changes, Carvana is now better equipped to thrive in multiple areas of its operations. Citi's recommendation comes after Carvana's shares experienced a 22% decline since their peak on December 16, 2022, a sharper drop compared to the 3% fall of the S&P 500 during the same period. The firm sees the current lower stock price as an opportunity for investors to engage with the company's shares.
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