Citi upgrades used car retailer Carvana, lifts PT by $82

Investing.com -- Citi has upgraded Carvana Co (NYSE:CVNA ) to “buy/high risk” and raised its price target to $277 from $195 given its strong retail unit sales growth and gross profit per unit improvements. The brokerage highlighted Carvana's efficient inventory expansion and its ability to capitalize on a stabilizing auto market.

Citi's expects Carvana's Q4 retail unit sales beating consensus by 7%, driven by improved new-vehicle supply and stronger advertising efforts. Retail unit sales are expected to grow 48% year-over-year.

Carvana has achieved sustainable GPU improvements through better logistics, streamlined processes, and enhanced inventory management. Citi sees these efficiencies as durable, supporting further margin expansion.

The company’s efforts since 2022 have strengthened its profitability and operational structure, positioning it to leverage fixed costs more effectively. Margins are expected to benefit from greater utilization and ongoing efficiency gains.

Citi values Carvana at 19x its projected 2026 EV/EBITDA, with an enterprise value of $42 billion. Despite recent stock weakness, the note suggests upside potential based on Carvana’s market share gains and operational improvements.

“With improved new-vehicle supply, we believe the broader auto industry is normalizing which should bode well for new, used, and wholesale units sold,” analyst said.

Source: Investing.com