Carvana, the popular used-car seller, has received an optimistic projection for its profits, resulting in a boost to its stock price target. Colin Sebastian, an analyst at Baird, raised the target for Carvana’s stock (CVNA) to $45 from $25 while maintaining a Hold rating. According to FactSet data, 15 other analysts have also rated the stock similarly.
Carvana’s positive outlook comes after the company recently attended a J.P. Morgan conference where it raised its expectations for gross profit per unit (GPU) and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the current third quarter ending in September.
This revised forecast is a result of Carvana’s increased loans sales in the third quarter and its successful implementation of operational improvements over the past 18 months. The company has seen significant improvements in lowering costs at inspection centers and bringing more services in-house. Notably, Carvana reported record GPU in the first and second quarters.
Colin Sebastian believes that these fundamental changes will have a lasting impact and has revised his full-year estimate for 2024 from a loss of $1.60 per share to a loss of $1.23 per share. Analysts tracked by FactSet anticipate a loss of $2.56 per share for 2024.
Carvana’s continued growth and positive momentum in their profit outlook have led to increased confidence from analysts and investors alike. With a promising trajectory, Carvana is well-positioned for success in the used-car market.
Carvana’s Shares Show Promise in Pre-market Trading
Carvana saw a 2% increase in its shares during premarket trading on Thursday. After closing down 5.8% to $41.44 on Wednesday, the recent surge suggests an impressive 9% upside potential to Baird’s newly established price target.
In what has been an exceptional year for Carvana, its shares have skyrocketed by an astounding 774% since the beginning of the year. This remarkable success can be attributed, at least in part, to the substantial amount of Carvana shares that are held by short sellers. Currently, approximately 42.2% of the available trading shares are held by these short sellers, as reported by FactSet. In comparison, the SPDR S&P 500 exchange-traded fund has a short interest of 14.1%.
The presence of these short sellers indicates that investors have borrowed and sold a significant number of Carvana shares, with the intention of buying them back at a later date when the price is lower. This strategy allows them to capitalize on the price difference and cover their borrowing costs. When a company with heavily shorted stocks provides positive updates, it often triggers a rush from short sellers to buy and close out their positions. Consequently, this can drive stock prices higher.
While the short selling activity should be taken into consideration as a significant risk factor, it doesn’t undermine Sebastian’s price target or the assessments made by other analysts.