Morgan Stanley, which upgraded Carvana’s (NYSE:CVNA), cited an attractive entry level following recent stock pullbacks as the reason for its early Tuesday trading rise.
Stocks of the used-car retailer rose more than 6% in premarket trading to reach $227.02 after investment bank upgraded its rating from Hold to Buy and increased its target price to $280.
Morgan Stanley: Falling Carvana shares offer a unique opportunity for investors
Morgan Stanley analyst Adam Jonas stated that the recent decline in Carvana stock prices presents an “unique chance for investors to get exposure to a leading auto retailer and fleet fulfillment company.”
Carvana was praised for its competitive advantage and execution. This boosted the company’s long-term prospects.
Jonas said that “While Carvana is more exposed to lower levels of auto credit than the rest of the auto coverage we offer, it has shown execution through profitable growth. It also addressed concerns about leverage.”
Carvana’s stock was trading at $285 by mid-February, but it fell 12.1% on February 19, after the company reported its fourth quarter earnings.
The company exceeded its financial expectations but the stock seemed to be losing momentum after a recent rally which saw the price rise by roughly 450% in the last year.
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), which were $339 millions in 2023, increased to $1.4 billion by 2024.
FactSet predicts that Wall Street will expect EBITDA to reach $1.9 billion by 2025.
Analysts are optimistic about Carvana’s future
The latest update has seen 55% analysts rating Carvana stocks as Buy, which is the same ratio of Buys that S&P 500 companies have.
Price target consensus is around $279. This suggests additional upside.
Carvana is currently valued at approximately 27 times the estimated EBITDA for 2025, as opposed to the industry average of only 17 times.
Analysts claim that rapid EBITDA increases justify the premium valuation.
Piper Sandler’s analysts also spoke out last week and advised investors to “buy on the dip” after Carvana’s recent share price decline.
The price target was reiterated at $225, which implies a more than 20% increase from the close on Thursday, a level that had been breached by Tuesday.
Carvana has a share in the used-car market of around 1%. However, it could grow to more than 10% over time.
Piper Sandler, Carvana’s Vice President of Sales, says that the company could sell 3 million vehicles in the future, compared to its 416,000 vehicle sales last year.
Carvana’s resiliency amid market challenges
Analysts believe that Carvana will be well protected from new tariffs.
It mainly sells used cars within the US to reduce its exposure to trade uncertainty.
Its innovative digital retailing model also allows it to continue growing even when the used car market is facing challenges.
Analysts’ bullish forecasts and recent upgrades suggest investors view Carvana, a strong player in an evolving auto retail market with strong growth potential despite volatility.
The post Carvana Stock Surges 6% After Morgan Stanley Upgrade may be updated as new information unfolds
