By Senad Karaahmetovic
Shares of Carvana (NYSE:CVNA) are up over 5% after a Raymond James analyst upgraded to Market Perform from Underperform ahead of Q2 results next week.
The rating call is based on the belief that the current valuation appears more balanced after a 40% drop in shares since early May.
“Our overall thesis has remained relatively unchanged including CVNA is navigating a difficult operating environment, while also integrating 56 inspection centers from the ADESA acquisition (vs. 17 centers pre-acquisition). Although we believe CVNA has a long runway for growth in the coming years, and the ADESA acquisition is strategically sound, a more favorable entry point for shareholders is likely a few quarters away when the company can show sustainable EBITDA margin progress,” the analyst told clients in a note.
Despite the upgrade, the analyst lowered 2022E/2023E adjusted EBITDA to a loss of $730 million and profit of $38 million, respectively.
“We believe lagging indicators for the industry indicate the industry is remaining in “neutral” (prices indicating normal depreciation and units are down-as-expected lapping stimulus) while leading indicators (falling consumer sentiment, slowing wholesale channel pricing, and improving inventory levels) suggest the industry could enter “reversal” territory likely at some point during 3Q22-2Q23. For Carvana this is likely to be accompanied by continuing pressures in the supply chain and the temporary headwind of rapidly rising interest rates hindering other revenue,” he added.
The analyst believes that Carvana may see a new acceleration period starting from Q4.
Carvana shares are down 90% YTD.