Stock Analysis & Ideas

Carvana (NYSE:CVNA): Wall Street Remains Cautious Despite Recent Business Update

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Wall Street analysts remain cautious about used-car retailer Carvana despite the company’s favorable business update about the first quarter and a debt exchange plan.

Used-car retailer Carvana (NYSE:CVNA) recently provided a business update, which indicated a lower estimated first-quarter loss compared to the prior-year quarter. The company also announced a debt exchange plan of $1 billion in a bid to restructure its debt. While investors cheered the business update, Wall Street analysts remain sidelined on the stock, as they believe the company continues to struggle and has much to do to reduce its costs and debt burden.

Wall Street Remains Cautious

Carvana’s preliminary estimates indicate first-quarter adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss in the range of $50 million to $100 million, down from the $348 million loss in the prior-year quarter. The expected reduction in losses is expected to be driven by a decrease in advertising spend and operating efficiency measures.

Carvana enjoyed strong demand for used cars during the pandemic. However, demand cooled off due to macro pressures and the company suffered as it piled up significant inventory at high prices.

Reacting to Carvana’s recent update, JPMorgan analyst Rajat Gupta, who has a Hold rating on CVNA, acknowledged that Carvana’s focus on costs will reduce cash burn in the near term. However, he finds the de-scaling of its business (units down 25% year-over-year) concerning. While Carvana’s cost cuts helped in raising the EBITDA estimates, Gupta feels that it is still not enough to address the “ongoing drain on liquidity and the increasing debt burden.”

Evercore ISI analyst Michael Montani noted that if debtors accept Carvana’s restructuring terms, the company’s annual interest expense will come down by $100 million. Montani maintained a Hold rating but slightly increased the price target to $10 from $9 to reflect lesser EBITDA pressure and a potentially improved capital structure.

Is Carvana a Buy, Sell, or Hold?

Carvana stock has surged nearly 73% since the start of this year, thanks to meme stock frenzy. Wall Street has a Hold consensus rating on CVNA stock based on two Buys, 14 Holds, and one Sell. The average CVNA price target of $9.92 implies 21.1% upside from current levels.


Carvana’s debt exchange plan could help in bringing down its expenses. However, as per a Bloomberg report, a group that holds over 80% of the company’s debt will oppose its restructuring plan. Most Wall Street analysts remain sidelined on Carvana due to continued cash burn and significant losses. Moreover, despite its cost reduction efforts, the company might continue to face weak demand due to growing macro pressures.


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