By Sam Boughedda
Oppenheimer analysts lowered the firm's rating on Carvana Co (NYSE:CVNA) to Perform from Outperform, removing their price target on the stock in a research note on Tuesday.
They explained that the firm remains optimistic about the longer-term prospects for Carvana shares, describing it as representing one of the "most innovative omni-channel operators we have studied."
However, they believe significant nearer-term operational and financial risks for Carvana have emerged, which are "likely to cloud the CVNA investment story for the foreseeable future."
Carvana shares are up over 7% Monday.
"Currently, CVNA is contending with a difficult combination of a still-bloated cost infrastructure and waning consumer demand, tied to elevated prices for used cars and weakening underlying sentiment amongst core buyers. We remain optimistic that a further moderation in prices of pre-owned vehicles should serve to unlock building pent-up demand, over time," wrote the analysts.
"As we have indicated, per our estimates, CVNA is likely to require more than $6B in additional capital through 2025. CVNA ended Q3 with cash of about $320M and "leverage-able" assets of roughly $2.1B," they added. "We do not envision investors bidding CVNA meaningfully higher until prospects for a manageable and sustained capital base become clearer."