Analyst reboots Carvana stock price target on pullback | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

These are the people who want to drive you happy.

In 2022, online used car retailer Carvana (CVNA) made its Super Bowl debut with a 30-second commercial with the slogan “We’ll Drive You Happy.”

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The Los Angeles Rams went on to beat the Cincinnati Bengals 23-20, while the Tempe, Ariz., company known for its car-vending machines was sacked by New Constructs, which labeled Carvana a “zombie company.”

The equity-research firm said Carvana had “failed to generate positive free cash flow in any year since going public in 2017.”

Carvana laid off 12% of its staff in May 2022 after falling short of growth expectations and its shares sank 90%.

Then the company kicked off a much-heralded turnaround and Co-Founder and Chief Executive Ernie Garcia told analysts that “we were stubborn and ambitious.”

In January, however, short-selling firm Hindenburg Research issued a report that declared Carvana’s rebound “a mirage.”

Analysts say Carvana offers an opportunity for investors.

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Carvana CEO: Journey just beginning

The firm said its research uncovered $800 million of loan sales to a “suspected undisclosed related party, along with details on how accounting manipulation and lax underwriting have fueled temporary reported income growth – all while insiders cash out billions in stock.”

Hindenburg, which closed its doors a short time later, said Carvana was exorbitantly valued and its business faced major headwinds as used car prices declined.

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Carvana said the Hindenburg report’s arguments were “intentionally misleading and inaccurate and have already been made numerous times by other short-sellers seeking to benefit from a decline in our stock price.”

In February, Carvana beat Wall Street’s fourth-quarter-earnings expectations.

Garcia said that in 2024 Carvana became the most profitable public automotive retailer in U.S. history measured by adjusted Ebitda margin while also resuming industry-leading growth.

“This unique combination is the product of more than $10 billion, 10 years, and tens of millions of hours of hard work invested to develop a truly differentiated business model that delivers both better customer experiences and better results,” he said.

“With just about 1% market share today and many opportunities to improve and expand our offering from here, we know this is just the beginning of our journey to change the way people buy and sell cars,” Garcia added.

On March 20, Piper Sandler upgraded Carvana to overweight from neutral, affirming its price target at $225.

Analyst cites Carvana’s competitive advantages

Most used car transactions don’t span international borders, and demand is relatively stable, regardless of the macro environment, the analyst tells investors in a research note.

Further, Piper says “staid business models and extreme fragmentation have left the door open to disruptors.” Given this, the firm upgraded both Carvana and ACV Auctions to overweight following the recent share pullbacks.

For both companies, since market share is starting from a low base, Piper expects multiyear revenue growth of more than 20% annually, with earnings growing even faster. The firm says the stock can grow despite macro unease and/or higher tariffs.

President Donald Trump said on March 24 that he soon would impose tariffs targeting automobiles, pharmaceuticals and other industries. Piper Sander suggested Carvana could be particularly well insulated from the impact of new tariffs.

Used cars are sold primarily domestically, the analysts said, and Carvana could have room to grow its sales even if the broader used car market struggles.

A White House official told CNBC that the tariffs targeting specific sectors “may happen or may not.”

Amazon (AMZN) is planning to get into the used car business, but analysts at Bank of America Securities didn’t see this as a direct threat to Carvana, maintaining their buy rating and $220 price target on the company’s shares.

Carvana shares have been falling since February and Morgan Stanley said a sharp pullback presents “a unique opportunity for investors to gain exposure to a leader in auto retail and fleet fulfillment,” The Fly reports.

Morgan Stanley, which lifted Carvana to overweight from equal weight and its price target to $280 from $260, said its recent site visit reinforced the company’s competitive advantages.

While Carvana remains more exposed to a lower strata of auto credit relative to the rest of the firm’s auto coverage, the company has demonstrated execution with profitable growth and addressed leverage concerns, the firm added.