On Friday, Deutsche Bank (ETR:DBKGn) adjusted its price target for Carvana Co. (NYSE:CVNA), raising it significantly to $108.00 from the previous $66.00 while maintaining a Hold rating on the stock. The increase follows Carvana's first-quarter earnings release, which was met with a notably positive response from the market. The used car e-commerce platform reaffirmed its momentum going into the rest of the year, indicating its capability to grow profitably.
Carvana reported an adjusted EBITDA of $235 million, with a margin of 7.7% for the quarter, surpassing the consensus estimate of $128 million. This performance was also higher than the company's capital expenditures and interest expenses. Management expressed confidence in Carvana's trajectory, anticipating a sequential rise in adjusted EBITDA and affirming its forecast for year-over-year growth in retail units sold and adjusted EBITDA for the fiscal year 2024.
The company's ability to return to growth in a profitable way was evident in the first quarter's results. Carvana has been working on initiatives aimed at improving efficiency across variable costs and gross profit. The firm's strategy has been to focus on cost efficiencies as part of its revised approach to achieving profitability.
The key issue identified by Deutsche Bank is how Carvana will manage the costs associated with its pursuit of higher growth, especially under varying market conditions. As the company expands, it faces the challenge of maintaining a balance between growth and cost management. Nevertheless, the first quarter's performance and guidance for the second quarter have made the potential for operational leverage in Carvana's business model more apparent.
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