Carvana's Optimistic Outlook Challenged by Analyst

Jefferies Analyst Advises Selling Carvana Stock

Jefferies analyst John Colantuoni has expressed concerns about the overly positive outlook for online auto retailer Carvana, urging investors to sell their stock. Colantuoni had previously assigned a "Hold" rating to the stock since May of last year but has now downgraded it to "Underperform," which is equivalent to a "Sell." He has also revised the price target down from $55 to $30.

Carvana Reaps the Benefits of a Record-Breaking Quarter

Carvana (ticker: CVNA) has experienced a remarkable surge in its share price this year, with a gain of 808% to date. On Monday, the shares were trading at $45.44, marking a 3.3% increase. The stock took off in May and climbed even higher following Carvana's announcement of a record second-quarter profit of $155 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) on July 19. The company's gross profit per unit also displayed significant growth, reaching $6,520 compared to just half that amount a year earlier.

Analysts' Consensus Call vs. Colantuoni's Concerns

While analysts forecast Carvana's gross profit per unit (GPU) to reach nearly $5,000 by 2024, representing a 75% increase from its pre-pandemic level of $2,883, Colantuoni disagrees with this optimistic view. He believes that these elevated profits are due to temporary factors and therefore considers the consensus forecast to be too ambitious.

Carvana has attributed the exceptional GPU number in the latest quarter to approximately $900 worth of one-time items, including an increase in car loans sold and adjustments to inventory valuation.

In summary, Jefferies analyst John Colantuoni cautions that the positive outlook for Carvana may be overly optimistic, leading him to recommend selling the stock.

Carvana's Financial Outlook

Carvana, the popular online car retailer, experienced losses in the fourth quarter due to an excess inventory of vehicles and declining prices in the industry. However, in the following two quarters, the company managed to counter these losses by adjusting car prices and subsequently boosting profit.

In addition to this adjustment, Carvana is also benefiting from selling loans, which is expected to provide a further boost to their Gross Profit per Unit (GPU) in the coming quarters. However, it remains uncertain whether changes in the valuation of inventory will continue to contribute to these gains.

For the current third quarter, Carvana is optimistic about their adjusted GPU surpassing $5,000. CEO Ernest Garcia expressed confidence in their sustained GPU gains, stating that their outlook reflects this expectation.

Despite these positive projections, industry experts have given some cautionary advice. Colantuoni warns of a rough road ahead, emphasizing the potential challenges that Carvana may still face.

Analysts at RBC Capital Markets have also voiced concerns, downgrading Carvana's shares from Sector Perform to Underperform. According to FactSet, 9% of analysts rate Carvana's stock as Buy, 65% as Neutral, and the remaining as Sell.

Overall, Carvana's financial outlook for the future appears promising, with the company taking proactive measures to counter losses and generate profits.