You’ve got to hand it to used car chain retailer Carvana (NASDAQ:CVNA). It pushed the envelope for how we buy and sell used cars even to this day. The “car vending machine” concept caught all sorts of attention, even if it proved to be a bit too cumbersome for its own good. Yet, with the car market fundamentally shifted by labor issues, supply chain troubles, and of course, how hard it is to get a loan these days that doesn’t require an interest rate that looks like a phone number, Carvana has come under fire. Today, however, it’s up over 5% thanks to a little new love from analysts.
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Just 10 days ago, Carvana took a kick in the teeth after S&P Global Ratings brought it down to a “D” rating. Anyone who’s been in school before will likely tell you that a “D” is bad news and all but guarantees parental lecturing followed by no TV for a while. However, fast forward 10 days, and Carvana is looking to get out of the basement, with S&P Global Ratings hiking its rating to a “CCC+.” Carvana did quite a bit in very little time to turn things around, starting with debt restructuring and going to new notes that come with a payment-in-kind feature.
While this is certainly good news, there’s the rest of the market to consider. With a strike increasingly likely at the Big Three automakers—Ford (NYSE:F), General Motors (NYSE:GM), and Stellantis (NYSE:STLA)—that’s just as likely to put the kibosh on Carvana’s impressive turnaround. Suddenly, both new and used cars will be nearly impossible to find again, and the value of a used car will skyrocket thanks to more people hanging on to the cars they have. That hinders virtually all of Carvana’s business model and puts it in a terrible situation going forward.
Indeed, analysts are skeptical here. Currently, Carvana stock is considered a Hold, supported by one Buy rating, 11 Holds, and five Sells. Today’s pricing action also upped the downside risk; with an average price target of $40.13, Carvana stock comes with a downside risk of 20.08%.
