Kar Auction Slips As 3Q Sales Lag Expectations; Street Sees 40% Upside

Shares of Kar Auction Services fell over 2% in extended trading on Tuesday after the vehicle auction retailer delivered 3Q revenues of $593 million, which declined 15.4% year-over-year and lagged Street estimates of $646.4 million.

Meanwhile, Kar’s (KAR) 3Q EPS of $0.45 grew 28.6% year-over-year and topped analysts’ estimates of $0.28. Adjusted EBITDA advanced 8% year-over-year to $139.2 million.

Ahead of the 3Q results, Barrington analyst Gary Prestopino estimated 3Q “revenue of $647 million, adjusted EPS of $0.30 and adjusted EBITDA of $126.7 million.” He maintained a Buy rating and a price target of $25 (53.3% upside potential) and said that “We remain confident that the wholesale vehicle marketplace is resilient and will eventually return to levels of activity prior to the pandemic.”

Prestopino added that “The impact of COVID-19 could drive more vehicle ownership in lieu of ride sharing or public transportation.” Further, “Increases in retail used vehicle sales will benefit KAR as dealers need to replenish drawn down inventory as retail unit sales reinvigorate,” he said. (See KAR stock analysis on TipRanks).

Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 5 Buys and only 1 Hold. The average price target of $22.83 implies upside potential of about 40% to current levels. Shares have declined 25.2% year-to-date.

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