Carvana (NYSE:CVNA) shares rose in early trading on Tuesday after Morgan Stanley upgraded the stock, citing an attractive entry point following a recent pullback.
The used-car retailer’s stock climbed more than 6% to $227.02 in premarket hours after the investment bank boosted its rating to Buy from Hold and raised its price target to $280 from $260.
Fall in Carvana stock a ‘unique opportunity’ for investors: Morgan Stanley
Morgan Stanley analyst Adam Jonas said the recent downturn in Carvana’s stock price presents a “unique opportunity for investors to gain exposure to a leader in auto retail and fleet fulfillment.”
The firm highlighted Carvana’s competitive advantages and strong execution, reinforcing its long-term growth prospects.
“While Carvana remains more exposed to a lower strata of auto credit relative to the rest of our auto coverage, the company has demonstrated execution with profitable growth and addressed leverage concerns,” Jonas added.
Carvana stock had been trading above $285 in mid-February but fell by 12.1% after reporting fourth-quarter earnings on February 19.
While the company’s financial results exceeded expectations, the stock appeared to lose momentum following a rally that saw it surge roughly 450% over the past year.
The firm’s earnings before interest, taxes, depreciation, and amortization (EBITDA) improved significantly, reaching $1.4 billion in 2024 from $339 million in 2023.
Wall Street expects EBITDA to rise further to $1.9 billion in 2025, according to FactSet.
Why analysts are bullish on Carvana’s future
With the latest upgrade, 55% of analysts covering Carvana stock now have Buy ratings, matching the average Buy-rating ratio for S&P 500 stocks.
The consensus price target stands at approximately $279, suggesting additional upside.
Carvana’s current valuation trades at around 27 times estimated 2025 EBITDA, compared to an industry average of 17 times.
Analysts argue that the company’s rapid EBITDA growth justifies the premium valuation.
Piper Sandler analysts also weighed in last week, advising investors to “buy the dip” following Carvana’s recent stock slide.
They reiterated a $225 price target, implying more than 20% upside from Thursday’s close, which was breached on Tuesday.
The firm pointed out that Carvana’s share of the used car market is currently around 1%, but it has the potential to expand beyond 10% in the long run.
Carvana’s vehicle sales, which totalled 416,000 last year, could surpass 3 million over time, according to Piper Sandler.
Carvana’s resilience amid market headwinds
Despite concerns about new tariffs affecting the auto sector, analysts believe Carvana is well-insulated.
The company primarily sells used vehicles within the US, reducing exposure to global trade uncertainties.
Additionally, its innovative digital retail model allows for continued growth even if the broader used car market faces challenges.
The recent upgrades and bullish outlook from analysts suggest that investors see Carvana as a resilient player in the evolving auto retail landscape, with strong growth prospects despite market volatility.
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