Wells Fargo has maintained its Overweight rating on Carvana Co. (NYSE: NYSE:CVNA) and increased its price target to $250.00, up from the previous target of $175.00.
The firm cited several reasons for the optimistic outlook on the online used car retailer, including Carvana's year-to-date stock performance, which has significantly outpaced the broader market, with shares climbing 273% compared to the S&P 500's 23% increase.
The analyst from Wells Fargo highlighted that despite the already substantial gains, there appears to be further potential for Carvana's stock with improving fundamentals and a long-term opportunity driven by growing profitability among other factors.
The firm believes that Carvana is successfully gaining market share in the volatile used vehicle market and that the reduction of debt-related concerns is likely to improve future financial perceptions.
In addition to the price target adjustment, Wells Fargo also revised its earnings per share (EPS) estimates for Carvana for fiscal years 2024 and 2025. The new forecasts are set at 72 cents and $2.22 respectively, marking increases of 24 cents for FY24 and 14 cents for FY25. The updated price target of $250 is based on a discounted cash flow (DCF) analysis.
The Wells Fargo analyst also noted that while the margin by which Carvana's performance may beat market expectations could decrease, the company's share gains in an otherwise inconsistent used vehicle market, along with an alleviated debt burden, are positive indicators for the company's trajectory.
In other recent news, Carvana has been making significant strides in its financial performance and operations. The online auto retailer has reached a milestone of four million online vehicle transactions since its inception.
The company's third-quarter unit sales projections have been raised to 107.8 thousand units, marking a 33% increase year-over-year, according to Citi's research. Carvana's management projects a year-over-year growth rate of over 25% for third-quarter unit sales and EBITDA for 2024 between $1 billion and $1.2 billion, surpassing the consensus estimate of $890 million.
Stephens and BofA Securities have both reaffirmed their positive stances on Carvana, with Stephens maintaining an Overweight rating and a $190.00 price target, and BofA Securities raising the price target to $210 from the previous $185 while maintaining a Buy rating. However, despite the positive adjustments, Citi maintains a neutral stance on Carvana.
InvestingPro Insights
The recent analysis from Wells Fargo aligns with several key metrics and insights from InvestingPro. Carvana's strong market performance is reflected in its impressive 521.57% price total return over the past year, significantly outpacing the broader market as noted in the article. This momentum is further supported by InvestingPro data showing a 160.98% price total return over the last six months.
InvestingPro Tips highlight that Carvana is "Trading near 52-week high" and has shown "Strong return over the last three months," corroborating Wells Fargo's optimistic outlook. The company's improving fundamentals are evident in its transition to profitability, with InvestingPro data indicating that Carvana has been "Profitable over the last twelve months" with a Basic EPS (Continuing Operations) of $6.2 USD.
The article's mention of Carvana's potential for growing profitability is supported by the InvestingPro Tip that "Analysts predict the company will be profitable this year." Additionally, the company's PEG ratio of 0.3 suggests it may be undervalued relative to its growth prospects, which could justify Wells Fargo's increased price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 19 additional tips for Carvana, providing a deeper understanding of the company's financial health and market position.
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