Carvana Investors Are 'Overly Optimistic,' Analyst Says In Downgrade

Shares of Carvana Co CVNA rallied through July, adding almost 70% over the past month.

The company’s “elevated profitability” in the second and third quarters of 2023 has resulted in “overly optimistic” Street expectations, according to Jefferies.

The Carvana Analyst: John Colantuon downgraded the rating for Carvana from Hold to Underperform, while reducing the price target from $55 to $30.

The Carvana Thesis: While the company’s GPU (gross profit per unit) reached record highs in the second quarter, this was due to “transitory tailwinds that will abate in the coming quarters,” Colantuon said in the downgrade note.

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“We believe GPU is temporarily benefiting from transitory tailwinds like wider wholesale/retail spreads and the timing of loan sales, which we expect to normalize throughout 2H23,” the analyst wrote. “We also envision an acceleration in Unit growth next year leading to inefficiencies that further negatively impact per unit economics,” he added.

“New capital structure still requires a material improvement in unit economics,” Colantuon further stated.

CVNA Price Action: Shares of Carvana were up 0.23% to $44.12 at the time of publication Monday.

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