On Monday, Needham has increased its stock price target for Carvana Co. (NYSE:CVNA) shares to $330 from the previous $300, while keeping a Buy rating on the stock. The company, currently valued at $32.3 billion, has demonstrated remarkable momentum with a 374% gain year-to-date.
According to InvestingPro analysis, Carvana maintains a perfect Piotroski Score of 9, indicating strong financial health. The adjustment reflects optimism about the used car market dynamics, which are anticipated to contribute to higher gross profit per unit (GPU) in the fourth quarter, as well as an expected surge in unit sales, supported by third-party data.
The firm's analyst highlighted the continued strength in used retail sales and noted that the wholesale market data has shown lower than usual levels of depreciation for the quarter to date. With a healthy current ratio of 3.25 and revenue growth of 12.2% in the last twelve months, Carvana appears well-positioned to capitalize on market opportunities.
These factors are seen as beneficial tailwinds for Carvana's Retail GPU, as they contribute to fewer days to sale and reduced levels of vehicle depreciation, in contrast to Carvana's guidance which suggested normal or weaker seasonality.
Moreover, the strong performance in the wholesale market is likely to result in increased prices for vehicle dispositions, which could positively affect Carvana's Wholesale GPU. The analyst has raised estimates for the fourth quarter in both units and GPU, and also increased longer-term unit estimates based on Carvana's market share gains and the robustness of the end market.
The revised fourth quarter adjusted EBITDA estimate by Needham is approximately 15% higher than the consensus, signaling a more bullish outlook for Carvana's financial performance. This revision comes amid a backdrop of favorable conditions in the used car industry that could potentially boost Carvana's profitability.
With analyst targets ranging from $75 to $320 and eight analysts recently revising earnings estimates upward, investors seeking deeper insights can access comprehensive analysis through InvestingPro's detailed research reports, which cover over 1,400 US stocks.
In other recent news, Carvana has witnessed a significant upgrade from Morgan Stanley (NYSE:MS), shifting its stock rating from Underweight to Equal-weight. This change came in the wake of Carvana's third-quarter earnings that exceeded expectations, leading to a substantial increase in the firm's price target for Carvana's shares, from $110.00 to $260.00. Morgan Stanley's confidence in Carvana's potential for growth and profitability is reflected in this adjustment.
Simultaneously, Carvana reported a record-breaking third quarter in 2024, with a 34% year-over-year increase in retail units sold, resulting in a 32% surge in revenue. The company's net income reached $148 million, with operating income of $337 million, and an adjusted EBITDA of $429 million. The revenue for the quarter hit $3.655 billion, demonstrating strong financial performance.
Carvana plans to increase its advertising spend by $5 million to $10 million in Q4 and anticipates an adjusted EBITDA significantly above the $1.0 billion to $1.2 billion range for the full year 2024. However, it is worth noting that the company's non-GAAP SG&A expenses rose 10% to $406 million.
Despite this, Carvana achieved milestones of selling and purchasing over 2 million cars, capturing only 1% of the $1 trillion used car market. These recent developments underscore Carvana's ongoing efforts to position itself for sustainable growth and market expansion.
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