Carvana Stock: Why One Analyst Sees Big Upside Post-Earnings

A BMW vehicle for sale at a Carvana vending machine in New York

(Image credit: Angus Mordant/Bloomberg via Getty Images)

Carvana (CVNA) stock soared out of the gate Thursday after the used car retailer beat top- and bottom-line expectations for its third quarter and gave an encouraging fourth-quarter forecast.

In the three months ended September 30, Carvana's revenue increased 32% year over year to $3.7 billion, driven by a 34% jump in retail units sold to 108,651. The company also said its gross profit per unit rose 20.2% to $7,685.

Meanwhile, its earnings per share (EPS) fell 82.2% from the year-ago period to 64 cents. The sharp drop in earnings compared to the year prior is a result of its Q3 2023 profit getting a boost from "a gain on debt reduction."

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"The third quarter was another exceptional quarter for Carvana. We had record performance in virtually every key financial measure," said Carvana CEO Ernie Garcia in a statement. "Most importantly, our customer experiences, our financial performance, and our pace of growth continue to separate us further from the pack in our industry. Today, we are the most profitable and fastest-growing automotive retailer and there is still much more to do."

The results handily beat analysts' expectations. Wall Street was anticipating revenue of $3.45 billion and earnings of 25 cents per share, according to CNBC.

For the fourth quarter, Carvana said it expects to achieve a sequential increase in its year-over-year growth rate in retail units sold. For the full year, it expects to achieve adjusted EBITDA "significantly above" the high end of its previously forecasted range of $1 billion to $1.2 billion for the full year. EBITDA is short for earnings before interest, taxes, depreciation and amortization.

"Our results through Q3 position us well for a strong finish to 2024," Carvana said.

Is Carvana a buy, sell or hold?

Even though Carvana has more than quadrupled for the year to date, most of Wall Street is on the sidelines when it comes to the consumer discretionary stock.

According to S&P Global Market Intelligence, the average analyst target price for CVNA is $220.35, representing a discount to current levels. Additionally, the consensus recommendation is Hold.

But there are bulls to be found. Financial services firm Needham, for one, has a Buy rating on the large-cap stock and raised its price target to $300 from $200 after earnings.

"CVNA is leading the onslaught against traditional car retailing in the U.S. by leveraging a digitally native, data-centric, capital-efficient, verticalized approach that we believe is a more compelling buying experience and should lead to significant value creation over the next several years," says Needham analyst Chris Pierce.

The analyst adds that Carvana's differentiated offering positions it "as a winner over a longer term time horizon," with the stock poised to "show durable share gains given a better consumer offering and industry fragmentation."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.