Carvana Stock Has 'Significant Value Creation' Ahead: Analysts Predict Market Share Gains

Carvana Co CVNA analysts reacted to the falling stock price and concerns from investors after the company reported fourth-quarter financials.

The Carvana Analysts:

RBC Capital analyst Brad Erickson reiterated a Buy rating on Carvana and raised the price target from $280 to $320.
Needham analyst Chris Pierce reiterated a Buy rating and raised the price target from $330 to $340.

RBC Capital: Carvana's fourth-quarter financials were solid, but an at-the-market offering could be a negative signal, Erickson said in a new investor note.

"The company is ramping inventory where we think upward revisions to unit estimates are the likeliest way forward, both GPU & SG&A/unit have room to drive further leverage," Erickson said.

The analyst said Carvana has "only just begun" expanding capacity and could be supply-constrained in the future.

Erickson said he would not be surprised if the company reported 30% to 40% growth in the first quarter versus a Street estimate of 28%.

"We believe CVNA's at a unique moment where it is hyper-focused on acquiring cars aggressively from all channels with a subtle but material & growing contribution from fleet/commercial channels."

Erickson said Carvana has more gross profit per unit upside and could pass those savings on to customers and provide a competitive advantage.

The company improving the balance sheet with the ATM offering likely helped the bear case against the stock, Erickson added. The analyst said the offering likely helps the company improve its balance sheet.

Needham: The company's best-in-class economics were shown off in the fourth-quarter results, Pierce said in a new investor note.

"We see CVNA as the best large-cap growth story in our coverage, rolling up share in a fragmented, low-tech industry with their digital first, vertically integrated offering," Pierce said.

Carvana stock falling on the earnings report and retail GPU figures is "shortsighted," the analyst added.

"CVNA was always going to be a unit growth story given high fixed costs."

The analyst said Carvana could see market share gains ahead.

"We continue to view CVNA's differentiated offering as a winner over the long term, as consumer preferences shift from physical to digital in used auto similar to other industries."

Pierce said Carvana can widen its moat with its physical infrastructure and tech.

"CVNA is leading the onslaught against traditional car retailing in the U.S. by leveraging a digitally native, data-centric, capital-efficient, verticalized approach that we believe is a more compelling buying experience and should lead to significant value creation over the next several years."

Price Action: Carvana stock is down 14.8% to $240.17 on Thursday versus a 52-week trading range of $48.15 to $292.84. Carvana stock is up over 360% in the last year.

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