Carvana bull thesis defended at Bank of America
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Carvana Co. (NYSE:CVNA) has not lost the confidence of Bank of America even after a nearly 90% selloff in the past six months.
Shares of the online auto retailer have traded in a volatile manner as of late, marking double-digit moves to the up and downside 5 times in the past two weeks. Amid these volatile swings, the upside moves have been outweighed by the persistent downward trend for shares, with shares falling over 60% in just the past month as profitability and debt problems dominate the conversation on Carvana (CVNA -5.4%).
Yet, the steep slide for the stock is not reason enough to give up on it, per Bank of America analyst Nat Schindler.
“Together with the move to acquire ADESA and the resulting expensive debt raise, investors appear to have largely given up on this once high-flyer,” he admitted. “We, however, still believe in Carvana and its opportunity for one glaring reason: it is a fundamentally better way for consumers to shop for and buy used cars, in our view.”
He added that while the ADESA acquisition has been lambasted and led to the leverage that is dragging shares downward as of late, the deal adds all-important capacity and will appear more sensible in the long run. Schindler said that ADESA also appears to be gaining market share, another positive indication for the oft-criticized acquisition.
“We think opportunity is still ahead as [Carvana] (CVNA) builds out more reconditioning centers to capture share of the 40 million annual used car market from highly fragmented competitors,” he concluded.
Schindler reiterated his “Buy” rating on the stock based upon its high brand recognition, market share, scale and margins. However, he slashed his price target from $225 to $80, the third such target trimming from Schindler on the stock in 2022. Nonetheless, the new target remains incredibly bullish, suggesting the stock should more than double from Thursday’s opening price.
Read more on Carvana’s turnaround strategy.