Shares of Cars.com spiked 25.6% on Thursday after the company provided strong 3Q revenue guidance that exceeded analysts’ expectations. The digital marketplace and solution provider to the automotive industry expects 3Q revenues between $142 million and $144 million, which is well ahead of the Street estimates of $141.7 million.
Cars.com (CARS) said that more and more customers are trying to connect with dealers digitally. As a result, cancellation rates fall to all-time low and net growth of dealer customers reached nearly 100 during 3Q.
CEO of the company Alex Vetter said, “The digital car-buying market has strengthened and dealer customers are further leveraging our unique digital solutions to drive profitable sales. Our preliminary results show continued momentum in our business with all-time high retention rates, sequential growth in dealer customers and ARPD and year-over-year growth in traffic and Adjusted EBITDA.” (See CARS stock analysis on TipRanks).
Following strong 3Q preliminary results, B.Riley Financial analyst Lee Krowl upgraded the stock to Buy from Hold and raised the price target to $11 (9.3% upside potential) from $9. In a note to investors, Krowl said that Cars.com updated sales outlook reflects a better-than-expected growth in net dealers and points to a recovery in consumer auto demand.
Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys versus 2 Holds. With shares down nearly 18% year-to-date, the average price target of $11.50 implies upside potential of 14.3% at current levels.