Carvana's stock price is up 2.8% premarket Thursday, on the heels of a bullish note from Evercore ISI analysts.
The investment firm added Carvana to its "positive tactical trading list" citing several factors that could drive the stock price higher.
"We look for double digit upside for CVNA to the $115-$125 range," states the Evercore ISI note. Their optimism is based on a valuation comparison to digital retail leaders like RH (NYSE:RH) and WSM, which trade at a higher EV/S multiple.
Evercore ISI believes Carvana is likely to outperform analyst expectations for the first quarter, citing "ongoing share gains amidst a growing used car industry backdrop." They project Carvana to report 27% growth in retail used units (to 97,000 units) and $254 million in EBITDA (up 64% year-over-year) when they report earnings in early August.
The note also highlights a potential short squeeze, mentioning Carvana's short interest (24%) and the expectation that many shorts will cover their positions as the company's earnings approach.
Evercore ISI acknowledges some potential risks, including moderating industry growth rates, rising interest rates, and volatile used vehicle pricing. However, they believe Carvana's strong digital presence and leadership in the used car market position them well for continued growth.
Furthermore, Evercore says "there could also be a tailwind for the shares with a view that potential Fed rate cut odds are rising into September as certain inflationary pressures subside."