On Thursday, BTIG updated its outlook on Carvana Co. (NYSE:CVNA), increasing the price target to $295.00 from the previous $188.00, while maintaining a Buy rating.
The firm highlighted Carvana's third-quarter performance, which exceeded Wall Street's sales estimates with unit sales reaching 108,651, surpassing the expected 106,300. A notable aspect of the report was the total gross profit per unit (GPU) of $7,685, which outdid the anticipated $6,599.
The enhanced GPU was partly attributed to a $150 benefit from overselling originations and a $100 benefit from a decrease in benchmark rates between loan origination and sale into the asset-backed securities (ABS) market.
Even after adjusting for these benefits, Carvana's GPU was significantly higher than anticipated, bolstered by increased retail/wholesale spreads and robust returns from wholesale dispositions. For example, Carvana's retail GPU saw a 2% sequential increase to $3,617, contrasting with CarMax (NYSE:KMX)'s 3% quarter-over-quarter decline.
Carvana also announced its decision to focus more on its retail marketplace operation, where it sells vehicles on consignment from other sellers, primarily commercial entities such as Hertz. While this move is expected to lower the retail revenue per unit sold to approximately $21,000 in the fourth quarter of 2024 from $23,400 in the third quarter, the volume of sales through this channel is anticipated to be in the single-digit thousands.
This strategy is seen as a way for Carvana to utilize its scale and excess capacity effectively.
Looking forward, Carvana anticipates an acceleration in the growth rate of unit sales for the fourth quarter of 2024 from the third quarter's 34%. The retail and wholesale GPUs are expected to show the usual seasonal patterns.
The company's guidance for full-year EBITDA was set to "significantly above" the high end of the previous range of $1.0 billion to $1.2 billion. BTIG's new estimate for the fourth quarter Adjusted EBITDA stands at $316 million, higher than the Street's $267 million, culminating in a full-year Adjusted EBITDA of $1.3 billion.
In justifying the revised price target, BTIG has shifted from a scenario-based valuation to a more direct EBITDA multiple. The firm believes that Carvana's significant total addressable market (TAM), industry-leading unit economics, and strong competitive position warrant a 32x multiple on the forecasted FY26 Adjusted EBITDA, leading to the new $295 price target.
In other recent news, Carvana has seen a wave of adjustments from analyst firms.
Evercore ISI has increased its price target for Carvana to $190, anticipating a positive third-quarter earnings report with a 33% growth in retail used unit sales. Wells Fargo also raised its price target to $250, citing improved fundamentals and long-term growth potential. The firm also increased its earnings per share (EPS) estimates for fiscal years 2024 and 2025 to 72 cents and $2.22, respectively.
BofA Securities, too, increased its price target for Carvana to $210, highlighting the company's market strategy. However, Citi maintains a neutral stance on Carvana despite these positive adjustments. Meanwhile, Stephens reaffirmed its Overweight rating on Carvana, 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.
InvestingPro Insights
Carvana's recent performance and BTIG's optimistic outlook are reflected in several key metrics from InvestingPro. The company's stock has shown remarkable strength, with a 667.81% price total return over the past year and a 150.01% return over the last six months. This aligns with BTIG's increased price target and bullish stance on the company.
InvestingPro data reveals that Carvana's revenue for the last twelve months as of Q2 2024 stood at $11.67 billion, with a gross profit of $2.19 billion and an impressive EBITDA growth of 278.35% over the same period. These figures support the company's strong performance mentioned in the article, particularly the better-than-expected GPU.
Two relevant InvestingPro Tips highlight that Carvana is "Trading at a low P/E ratio relative to near-term earnings growth" and "Analysts predict the company will be profitable this year." These tips corroborate BTIG's positive outlook and the company's improving financial health.
For investors seeking more comprehensive analysis, InvestingPro offers 17 additional tips for Carvana, providing a deeper understanding of the company's financial position and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.