BofA reinstates Carvana coverage at Buy amid accelerating growth, rates backdrop

Investing.com -- Bank of America (BofA) reinstated coverage of online used car seller Carvana Co (NYSE:CVNA ) with a Buy rating and a price target of $185, implying a potential upside of 21% from current levels.

The bullish move is rooted in Carvana's strong positioning for sustained growth within the $800 billion plus used car market, which is showing signs of recovery.

CVNA shares climbed more than 1% in premarket trading Tuesday.

According to BofA, the normalization of car prices, the return of car supply, and the potential for falling interest rates contribute to an environment ripe for Carvana's growth. The firm also pointed to Carvana's efficiency gains and a relatively large fixed-cost base as factors that will support the company's improved unit economics and leverage as its growth accelerates.

The used car market is still not at pre-COVID levels, and BofA expects further recovery as interest rates decline. Carvana is gaining market share as more used car sales move online and the market grows. Data from Cox Automotive showed that used car sales growth in July surged to 17% year-over-year, the highest in several years, with August also remaining strong at 14%.

“We see more upside than downside potential for units with Used Car sales still tracking approx. 20% lower than pre-COVID levels,” analysts noted. “Prices have normalized, and remain down 5% Y/Y in August.”

BofA's projections for CVNA are slightly more optimistic than the consensus, forecasting revenues and EBITDA of $15.45 billion and $1.50 billion for 2025, respectively, compared to the Street's estimates of $15.31 billion and $1.46 billion.

The bank's model assumes a 20% gross margin and sales, general, and administrative (SG&A) costs at 14% of revenues.

Looking ahead to 2026, analysts project 20% revenue growth driven by high-teens retail unit growth, suggesting that near-term profit estimates are within reach without the need for significant new capacity investments.

Still, BofA’s team cautioned investors about potential risks, including Carvana's debt levels, which could complicate navigation through a "hard landing" macroeconomic scenario.

Other concerns include the possibility of reinvestment in reconditioning capacity and supply as growth picks up, as well as persistent adverse macro trends, such as the ongoing used car shortage and the capital-intensive nature of the auto industry.

Source: Investing.com