On Wednesday, Wells Fargo (NYSE:WFC) updated its outlook on Carvana Co (NYSE:CVNA), increasing the price target to $250 from the previous $175. The firm maintained its Overweight rating on the stock. The adjustment reflects a positive view of the company's performance and future prospects, with Carvana's shares having significantly outperformed year-to-date, showing a 273% increase compared to the S&P 500's 23% gain.
The analyst at Wells Fargo cited improved fundamentals and a significant long-term opportunity for Carvana, driven by growing profitability among other factors. Despite the challenging environment for used vehicles, Carvana has been successful in gaining market share. The lift in the debt overhang is also seen as a factor that will improve the company's financial optics going forward.
In addition to the price target increase, Wells Fargo has raised its EPS estimates for fiscal years 2024 and 2025. The new estimates are up by 24 cents and 14 cents, bringing them to 72 cents and $2.22, respectively. The new price target is based on a discounted cash flow (DCF) analysis.
The analyst's comments indicate confidence in Carvana's ability to continue outperforming in the market. This is despite the potential for the margin by which the company beats market expectations to narrow. The overall assessment suggests that Carvana is well-positioned to navigate through the current market conditions and capitalize on its growth trajectory.
The updated financial metrics and price target from Wells Fargo provide investors with a revised benchmark for evaluating Carvana's stock performance in the near future. The Overweight rating implies that Wells Fargo expects the company to outperform the average total return of the stocks the analyst covers over the next 6 to 12 months.
In other recent news, Carvana has seen significant adjustments to its price targets by several firms. Wells Fargo raised its price target to $250 from $175, citing the company's improving fundamentals and potential for long-term growth. Similarly, BofA Securities increased its price target to $210 from $185, highlighting Carvana's strategy and market position. Stephens reaffirmed its Overweight rating on Carvana, maintaining its $190 price target.
These firms also revised their earnings per share (EPS) estimates for Carvana. Wells Fargo set new forecasts at 72 cents and $2.22 for fiscal years 2024 and 2025, reflecting confidence in Carvana's financial improvement. Despite these adjustments, Citi maintains a neutral stance on Carvana.
In another development, Carvana has reached a milestone of four million online vehicle transactions since its inception. The company's third-quarter unit sales projections have been raised to 107.8 thousand units, marking a 33% increase year-over-year. Carvana's management projects a year-over-year growth rate of over 25% for third-quarter unit sales and EBITDA for 2024 between $1 billion and $1.2 billion, surpassing the consensus estimate of $890 million.
InvestingPro Insights
Recent data from InvestingPro adds depth to Wells Fargo's bullish outlook on Carvana. The company's market capitalization stands at $41.68 billion, reflecting the substantial investor confidence mentioned in the article. Carvana's impressive year-to-date price total return of 272.78% aligns closely with the 273% increase cited by Wells Fargo, confirming the stock's significant outperformance.
InvestingPro Tips highlight that Carvana is trading near its 52-week high, with a strong return over the last month (12.67%) and an even more remarkable return over the last three months (52.85%). These metrics underscore the momentum behind the stock that Wells Fargo has recognized.
The company's profitability, a key factor in Wells Fargo's positive assessment, is supported by InvestingPro data showing an operating income of $406 million and an EBITDA of $733 million for the last twelve months as of Q2 2023. Moreover, the EBITDA growth of 278.35% over the same period indicates a significant improvement in Carvana's financial performance, aligning with the analyst's observations on growing profitability.
For investors seeking a more comprehensive analysis, InvestingPro offers 19 additional tips on Carvana, providing a broader perspective on the company's financial health and market position.
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