On Monday, BNP Paribas (OTC:BNPQY) Exane reaffirmed its Neutral stance on Carvana Co. (NYSE:NYSE:CVNA) shares, maintaining the stock's price target at $126.00. The decision follows a review of the auto financing environment influenced by Ally Financial (NYSE:ALLY)'s recent comments about weakening conditions in its auto credit portfolio, which has sparked discussions in the sector.
The analyst from BNP Paribas Exane noted that after engaging with management teams from Ally and Carvana, as well as analyzing financial filings from both Carvana and Carmax, a clearer picture of the financial landscape has emerged.
Despite concerns, it was observed that Carvana's finance operations, although not fully transparent due to private asset-backed security deals, do not solely account for the softness in Ally's used receivable business, as Carvana represents roughly 15% of this segment for Ally.
The report further explained that even if Carvana were a contributing factor to Ally's challenges, the impact would be linked to loan vintages from 2022-2023, periods for which Carvana has no residual exposure. However, the analysis did identify a potential risk for Carvana's growth.
If Ally were to tighten its credit policies, it could affect Carvana significantly due to their close financial relationship. Approximately 50% of Ally's growth in used receivables since 2019 is attributed to Carvana, which has been expanding its credit reach, including to more subprime borrowers, and scaling up its sales.
The collaboration between the two companies is significant, with Carvana selling half of its accounts receivable to Ally. This interdependence means that any strategic changes by Ally could have a direct impact on Carvana's operations. The review by BNP Paribas Exane suggests that while there is no immediate concern of Ally's weaknesses being driven by Carvana, the potential for a slowdown in Carvana's growth exists if Ally decides to implement stricter credit standards.
In other recent news, Carvana, the online used car retailer, has been the focus of multiple analyst reports following robust second-quarter results. BofA Securities reinstated coverage on Carvana with a Buy rating, citing the company's potential for significant long-term growth within the $800 billion used car market. Similarly, Evercore ISI increased its price target for Carvana, attributing this to the company's tightened lending practices and increased web traffic.
In addition, Stephens initiated coverage on Carvana with an Overweight rating, projecting EBITDA profitability for the company by the end of the year. This projection is backed by Carvana's innovative approach to the used vehicle retail market, which has resulted in superior financial metrics compared to its competitors.
Furthermore, Jefferies raised its price target for Carvana, citing the company's strategic capacity expansion. The firm's revised model shows a 7% increase in their 2025 revenue estimate for Carvana, and a significant 39% increase in their EBITDA estimate. TD Cowen also raised its price target for Carvana following a substantial 32.5% year-over-year increase in retail unit sales for the second quarter.
These developments come after Carvana's management provided guidance for third-quarter unit sales to exceed the second quarter's performance, indicating a year-over-year growth rate of over 25%. Carvana's projections for 2024 EBITDA range between $1 billion and $1.2 billion, surpassing the consensus estimate of $890 million. These recent advancements underscore Carvana's resilience and adaptability in the dynamic market.
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