On Thursday, JPMorgan (NYSE:JPM) shifted its stance on Carvana Co (NYSE:CVNA) shares, upgrading the online used car retailer from Neutral to Overweight. The firm also significantly increased the stock price target to $130.00, up from the previous $70.00. This move comes after Carvana reported a strong first quarter in 2024, with results surpassing expectations in terms of unit growth and economic metrics per unit.
Carvana's adjusted EBITDA for the first quarter of 2024 reached $235 million, which was not only higher than JPMorgan's own projection of $180 million but also exceeded the consensus estimate of $131 million. The guidance for the second quarter suggests an adjusted EBITDA of $235 million or more, again topping JPMorgan's and consensus estimates of $172 million and $136 million, respectively.
According to JPMorgan, Carvana's continued margin expansion and overall EBITDA improvement, coupled with the cash reserves on its balance sheet, should alleviate concerns about the company's ability to manage its debt and interest obligations over time. The firm suggests that the focus now shifts to Carvana's capability to maintain or accelerate its current pace of expansion while continuing to widen margins.
Despite the volatile used car market and anticipated supply challenges in the second half of 2024, Carvana has shown consistent improvement in unit economics over the past three quarters. With the current EBITDA per unit at approximately $2,600, the company appears to have considerable flexibility to adjust its operations to foster growth and capitalize on fixed costs.
JPMorgan has revised its unit sales forecasts for Carvana to approximately 391,000 in 2024, 460,000 in 2025, and 534,000 in 2026. They also anticipate an increase in margins by roughly $4,000 per unit during this period.
These adjustments lead to projected EBITDA figures of approximately $945 million for 2024, $1,150 million for 2025, and $1,460 million for 2026. The December 2024 stock price target of $130 is based on an estimated 25 times the 2026 EV/EBITDA, which is a premium compared to e-commerce peers, reflecting higher profit growth expectations and a larger total addressable market.
InvestingPro Insights
Following JPMorgan's upgrade of Carvana Co (NYSE:CVNA), the InvestingPro platform offers additional metrics that can help investors understand the company's performance and valuation. Carvana's recent strong performance is reflected in a significant return over the last week, with a price total return of 12.37%. This aligns with the company's robust first-quarter results and JPMorgan's optimistic outlook.
InvestingPro data shows a market capitalization of $17.78 billion and a noteworthy revenue growth rate of 17.46% for Q1 2024, indicating a solid start to the year. Still, it is important to note that Carvana's gross profit margin stands at 17.58% for the last twelve months as of Q1 2024, which might be considered on the lower end, aligning with the InvestingPro Tip that the company suffers from weak gross profit margins.
For investors looking for valuation metrics, Carvana is currently trading at a high Price / Book multiple of 61.53, which could be a point of consideration given the company's expected net income drop this year. To gain a deeper understanding of Carvana's valuation and performance, investors can explore more InvestingPro Tips by visiting InvestingPro, which lists a total of 16 additional tips for a comprehensive analysis. For those interested in a subscription, use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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