On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on Carvana Co. (NYSE:NYSE:CVNA) shares, shifting from an Underweight to an Equal-weight rating. The firm also significantly increased the price target for Carvana's shares to $260.00, up from the previous target of $110.00.
The upgrade comes after Carvana reported third-quarter earnings that surpassed expectations. The analyst from Morgan Stanley noted that the robust results largely warrant the recent positive shift in the stock's valuation.
According to the analyst, the optimistic scenario they previously outlined, with a price target of $220.00, is unfolding as Carvana's current share price reflects an anticipated growth in retail share to 4% and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margins nearing 12%. These targets are considered largely attainable by the firm.
The updated price target of $260.00 is a significant increase, indicating a change in the firm's outlook on the company's financial performance and market position. The analyst's comments suggest confidence in Carvana's ability to achieve the projected expansion in market share and profitability.
Carvana, known for its online car buying and selling platform, has been a subject of investor focus, and the revised rating by Morgan Stanley reflects a more neutral perspective on the company's stock, moving away from the previous cautious stance.
In other recent news, Carvana has reported a record-breaking third quarter in 2024. The online used car retailer showcased a 34% year-over-year increase in retail units sold, which contributed to a 32% surge in revenue. The company's leadership, CEO Ernie Garcia and CFO Mark Jenkins, emphasized a strategic focus on operational excellence, growth drivers, and the integration of ADESA assets for enhanced efficiency.
Carvana's net income reached $148 million, with operating income of $337 million and an adjusted EBITDA of $429 million in Q3. The revenue for the quarter hit $3.655 billion. Looking forward, the company plans to increase its advertising spend by $5 million to $10 million in Q4 and anticipates an adjusted EBITDA significantly above the $1.0 billion to $1.2 billion range for the full year 2024.
However, it is noteworthy that the company's non-GAAP SG&A expenses rose 10% to $406 million. On a brighter note, Carvana achieved milestones of selling and purchasing over 2 million cars, capturing only 1% of the $1 trillion used car market. These recent developments underscore Carvana's ongoing efforts to position itself for sustainable growth and market expansion.
InvestingPro Insights
Recent data from InvestingPro adds depth to Morgan Stanley's upgraded outlook on Carvana. The company's market capitalization stands at an impressive $47.75 billion, reflecting strong investor confidence. This aligns with the analyst's optimistic scenario and the significant price target increase.
InvestingPro Tips highlight Carvana's robust financial performance. The company has achieved a perfect Piotroski Score of 9, indicating strong operational efficiency and financial stability. This score supports Morgan Stanley's view of Carvana's improved market position and potential for growth.
Additionally, Carvana's revenue growth of 12.21% over the last twelve months, with a notable 31.81% quarterly growth, underscores the company's expanding market presence. This growth trajectory aligns with the analyst's projection of Carvana reaching a 4% retail share.
It's worth noting that InvestingPro offers 20 additional tips for Carvana, providing investors with a comprehensive analysis of the company's financial health and market position.
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