Carvana Co (NYSE:CVNA) Stock Update

Citi analysts have reaffirmed their Neutral/High-Risk rating for Carvana Co and increased the price target from $125 to $195.

This adjustment follows Citi’s examination of proprietary retail unit tracking data, indicating that Carvana’s projected third-quarter sales for 2024 are about 2% above consensus estimates. The expected sales volume is approximately 107.8 thousand units, reflecting a year-over-year increase of 33% and a quarter-over-quarter rise of 6% compared to the consensus of around 106 thousand units.

The analysts noted, “As a result, we are raising our units, GPU, and EBITDA projections for 3Q24 and beyond to reflect Carvana’s strengthening retail unit demand, growing inventory, and continued efficiency gains.”

Citi is impressed by Carvana’s expanding gross profit per unit (GPU), achieved through operational improvements, and anticipates more gains in this area. Their updated model shows stronger demand for retail units, growing inventory, and enhanced operational efficiencies.

Projected sales for the third quarter of 2024 are approximately 107.3 thousand retail units, which marks a year-over-year increase of 32.5% and a quarter-over-quarter rise of 5.8%. This forecast is based on Citi’s proprietary tracking of unit sales through early September, allowing for integration of seasonal trends.

Citi observed that although retail GPUs are expected to decline quarter-over-quarter in the third quarter, this is due to Carvana’s strategy of passing efficiency gains onto consumers to improve user experience and drive conversions. Significant benefits were noted from GPU improvements implemented in the second quarter of 2023.

Regarding profitability, Citi has found that non-GAAP selling, general, and administrative (SG&A) expenses have remained stable over the past 1.5 years. With this stability, they project that Carvana’s EBITDA margins will consistently align with the company’s long-term target range of 8-13.5%, indicating the early stages of profit expansion.

Citi analysts expressed caution, stating they prefer to remain on the sidelines but would consider opportunities around significant share pullbacks.