On Friday, Raymond James shifted its stance on Carvana Co. (NYSE:CVNA), raising the rating from Underperform to Market Perform. The adjustment comes after Carvana reported its fourth-quarter earnings for 2023, which aligned with the analyst's projections. The upgrade reflects an improved outlook for the company's adjusted EBITDA in 2024, acknowledging better-than-anticipated gross profit per unit (GPU) trends observed in the first quarter of 2024.
The analyst noted that despite Carvana sticking to the second phase of their turnaround plan, the anticipated negative impact on share prices did not materialize. The report mentioned that while Carvana's valuation remains high compared to its peers, the recent performance and the lack of immediate catalysts for further decline have led to a reassessment of the stock's outlook.
Raymond James' updated view is based on the continuation of favorable wholesale and retail spreads and structural improvements within Carvana's business. This positive shift in GPU trends during the first quarter of 2024 has prompted the firm to revise its adjusted EBITDA forecast upwards for the company.
While the analyst remains cautious, noting Carvana's premium valuation and a discounted cash flow (DCF) analysis that suggests a fair value in the approximate range of $35 to $45, the current market conditions have tempered the previously anticipated downside. The report concludes that the stock's volatility and recent developments merit a new evaluation of Carvana's performance and potential.
Investors and market watchers are advised to look ahead to the second-quarter trends, particularly in GPU and average selling price (ASP), for further indicators of Carvana's business trajectory.
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