On Friday, RBC Capital Markets adjusted its stance on Carvana Co. (NYSE:CVNA), raising the stock from Underperform to Sector Perform and significantly increasing the shares price target to $90 from the previous $45. The revision comes as the firm acknowledges the potential for the online used car retailer's shares to continue an upward trajectory before valuation concerns become a central focus for investors again.
The upgrade reflects a change in perspective following Carvana's performance since July 2023. RBC Capital suggests that the risk/reward balance of maintaining an Underperform rating no longer seems justified. The firm points to several factors that could contribute to Carvana's stock price momentum.
One is the anticipation of a return to meaningful unit growth that could lead to an over-extrapolation of the company's value, amplified by the high level of short interest in Carvana's shares.
Additionally, RBC Capital notes that Carvana's per-vehicle cash generation may be underestimated by the market, which could be a positive surprise for investors. This aspect, combined with the company's improving liquidity situation as its stock price rises, may enhance Carvana's access to capital markets and position it for favorable refinancing options.
The analyst's comments suggest that these dynamics could support Carvana's stock in the short to medium term, despite the previous negative thesis that played out soon after July 2023. The revised price target of $90 reflects a doubling from the prior target, indicating a more neutral outlook on the stock's future performance.
RBC Capital's updated assessment of Carvana underscores the impact of market dynamics, investor sentiment, and the company's financial strategies on its stock valuation. The new Sector Perform rating suggests the firm sees the company's stock as aligned with the overall performance of the sector for the foreseeable future.
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