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On Thursday, JPMorgan analysts adjusted their outlook on CarGurus Inc. (NASDAQ:CARG), downgrading the stock from Overweight to Neutral, while setting a price target of $34.00. The move comes as the firm assesses the automotive marketplace’s position and its recent evolution towards a transaction-enabled platform. According to InvestingPro data, CarGurus maintains strong financial health with an impressive gross profit margin of 83.73% and a market capitalization of $3.27 billion.
CarGurus has been recognized as a leading choice for U.S. car shoppers, expanding its offerings to include a suite of solutions for dealer customers. This suite encompasses digital dealer-to-dealer wholesale, consumer-to-dealer used vehicle sourcing, consumer financing, and a complete digital retail experience. The company’s expansion and product suite enhancements are aimed at strengthening its return on investment proposition by enabling upselling and cross-selling opportunities to dealer customers. With annual revenue of $894.38 million and a strong current ratio of 4.2, the company maintains robust operational efficiency.
Despite these positive developments, CarGurus faced operational challenges in the third quarter of 2022, particularly within its consumer-to-dealer business, known as IMCO, and its digital dealer-to-dealer business, CarOffer. These issues impacted the company’s growth trajectory; however, management has been actively addressing the problems at CarOffer. JPMorgan anticipates a gradual recovery in volumes and EBITDA contribution over the ensuing years.
The analysts believe that CarGurus is strategically well positioned in terms of product offerings and execution capabilities. Nonetheless, they expect a more challenging cyclical environment ahead due to steep tariffs on new vehicles. These market conditions could lead to a slowdown in pricing tailwinds, resulting in more conservative revisions compared to the growth seen in the previous 12-18 months. Therefore, JPMorgan has opted for a Neutral rating on CarGurus stock.
In other recent news, CarGurus has reported its fourth-quarter 2024 earnings, revealing mixed results. The company surpassed analysts’ expectations with an earnings per share (EPS) of $0.55, exceeding the forecasted $0.52. However, revenue came in at $229 million, falling short of the anticipated $231.85 million. The company’s marketplace revenue grew by 15% year-over-year, indicating robust demand, although the Digital Wholesale segment faced challenges with an $18 million adjusted EBITDA loss.
In executive changes, CarGurus announced that CFO Elisa Palazzo will step down in March 2025, with CEO Jason Trevisan temporarily assuming her responsibilities. Analysts have responded to the earnings report with various stock target adjustments. BTIG analyst Marvin Fong reduced the price target to $40, maintaining a Buy rating, while Citi’s Ronald Josey also set a $40 target, citing a Neutral stance. JMP analyst Nicholas Jones adjusted the target to $43, maintaining a Market Outperform rating.
The company’s first-quarter 2025 guidance projects consolidated revenue between $216 million and $236 million, slightly below consensus estimates. CarGurus plans to focus on product innovation and international expansion as part of its strategic initiatives. These developments come amid ongoing competitive pressures and the company’s efforts to navigate the evolving automotive marketplace landscape.
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