Citi cuts CarGurus stock price target to $40 from $43

On Friday, Citi analyst Ronald Josey adjusted the price target for CarGurus Inc. (NASDAQ: NASDAQ:CARG), reducing it to $40.00 from the previous $43.00, while maintaining a Neutral rating on the shares. The adjustment comes after the company reported its fourth-quarter earnings, which presented a mix of outcomes. The total revenue for CarGurus fell short of the consensus by 2%, despite its EBITDA exceeding expectations by 1%. However, the guidance for the first-quarter revenue of 2025 was approximately 5% below the consensus, indicating potential headwinds. According to InvestingPro data, CarGurus maintains strong financial health with an impressive gross profit margin of 82.62% and a solid current ratio of 4.2, suggesting robust operational efficiency despite near-term challenges.

CarGurus’ core Marketplace business showed promising signs with accelerating revenue growth and margin expansion, primarily driven by its U.S. operations. The company has seen success in increasing the penetration of premium tier packages among dealer partners and the adoption of its newer products. The products contributing to this growth include Digital Deal, which saw dealers increase by 13% quarter-over-quarter, Next (LON:NXT) Best Deal Rating, now used by over 15,000 dealers, and the Sell-My-Car TDO, which reached 500,000 monthly unique visitors. InvestingPro analysis reveals that CarGurus has delivered an impressive 64.15% return over the past year, with 13 additional key insights available to subscribers.

Despite these positive aspects, challenges persist in CarGurus’ Digital Wholesale segment, which continues to face difficulties. The firm’s analysis indicates that while there are areas of strength within the company, there are also segments that require attention and improvement.

Looking forward to the rest of 2025, CarGurus has earmarked it as a year of investment, with a focus on product development, international expansion, and brand enhancement. Observers will be closely monitoring the timing and scale of the returns on these investments, as well as their near-term impact on the company’s profitability.

In conclusion, Citi’s stance on CarGurus remains Neutral with a High Risk rating, as the firm anticipates the potential outcomes of the company’s strategic investments against the backdrop of current business challenges. The revised price target reflects these considerations and the latest financial results reported by CarGurus.

In other recent news, CarGurus reported its fourth-quarter 2024 earnings, which revealed a mixed performance. The company exceeded earnings per share (EPS) estimates with a reported EPS of $0.55, surpassing the anticipated $0.52. However, CarGurus’ revenue fell short, coming in at $229 million compared to the forecasted $231.85 million. Despite the revenue miss, the company achieved a 2% year-over-year increase in consolidated revenue, with marketplace revenue growing by 15%. JMP analysts responded by lowering CarGurus’ stock price target from $46 to $43, while maintaining a Market Outperform rating. The analysts noted ongoing challenges in the Digital Wholesale segment, which ended the year with an $18 million adjusted EBITDA loss. CarGurus has outlined plans for continued investment in international markets and AI integration to drive future growth. The company’s first-quarter 2025 guidance projects consolidated revenue between $216 million and $236 million.

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