JPMorgan analysts initiated CarGurus (NASDAQ:CARG) and Cars.com Inc. (NYSE:CARS) at Overweight with a $29 and $23 price target, respectively, in a note Tuesday.
The analysts told investors that the automotive marketplace is a relatively safe place to hide in an uneven macroeconomic environment.
"The auto marketplace sector is a relatively safe place to hide in the current macro backdrop given undemanding valuation and some cyclical support as new car inventory builds and both dealers and consumers look to get increasingly efficient in buying and selling vehicles," they expanded.
"We believe these businesses check many boxes: 1) asset-light; 2) right side of cycle; 3) SaaS-like revenue streams; 4) flexible opex (as seen during the pandemic); 5) generative AI applications, internally, and externally; 5) stable earnings and FCF growth in the near to medium term; 6) balance sheet leverage within bounds (CARG and TRUE are net cash); 7) not shy of buybacks; and 8) undemanding valuation," they added.
While the analysts acknowledged there are risks, such as the consumer credit backdrop, competition from big tech, and execution initiatives to broaden the TAM, JPMorgan sees the opportunities outweighing the risks, supporting its favorable view on the sector.